Shareowner Guidelines for Say-on-Pay Voting

Today, the United States Proxy Exchange (USPX) released standards for shareowners to use in making say-on-pay voting decisions. Congress’s new “say-on-pay” rules allow shareowners to express an opinion on executive compensation at annual meetings. But to make informed voting decisions, shareowners must first assess the compensation packages boards propose. That is not easy, since they tend to be staggeringly complex. Even sophisticated business professionals have a difficult time evaluating them, so how can average shareowners hope to do so?

This is not an idle issue. In the 2011 proxy season, institutional investors acted with breathtaking irresponsibility, collectively approving 98.3% of compensation packages. They did this as executive compensation continues to skyrocket. In 1965, CEO pay at large companies was 24 times the average worker’s wages. In 2010, that ratio was a staggering 343 to 1. Responding to the irresponsibility of institutional investors, John Harrington of Harrington Investments commented:

… if fiduciary duty, including ERISA, were truly enforced, lots of trustees, directors, administrators and managers would be in jail.

If shareowners−individual investors as well as small, medium and large institutional investors−do not start voting down the majority of compensation packages, they will have become part of the problem with executive compensation. A simple approach would be to vote against all executive compensation packages, but that would be self-defeating. If boards know compensation packages will be voted down no matter what they contain, those boards will have no incentive to make changes. Since say-on-pay votes are advisory, they would have no impact.

The USPX guidelines propose easy ways shareowners can review firms’ compensation packages and make reasonable say-on-pay voting decisions. The guidelines are predicated on the belief that some levels of compensation are so outlandish as to be unreasonable irrespective of a firm’s or CEO’s performance. The guidelines assist shareowners in deciding how and where to draw that line and then to identify compensation packages that cross the line.

On November 11, 2010, the USPX released draft guidelines for comment. Click here to review the draft guidelines and the many comments we received on them. The current guidelines reflect modest changes prompted by the feedback we received.

Drafting the guidelines has been difficult. We have had to balance the inherent complexity of the compensation issue with the need for guidelines that are both simple and relevant. The current guidelines apply only for compensation at large corporations. In future releases, we hope to extend the guidelines to small and medium corporations. In the mean time, we encourage shareowners to experiment with the guidelines and provide us with feedback. You can post feedback directly on this page using the comment form below.

3 Responses to Shareowner Guidelines for Say-on-Pay Voting

  1. James McRitchie August 4, 2011 at 2:55 pm #

    Fools may rush in where angels fear to tread, but why wait for more precise algorithms? I have gone ahead and am voting against all (exceptions where explanation is compelling) NEO pay packages at medium firms above the median of $4.3 and small firms above the $2.2 million median. Yes, this gives a free pass to those at the smaller end of each of each category but I think this is also the case at large companies.

    I am deeply disappointed that shareowners have become pay enablers, ratifying 98.3% of compensation packages when I’m sure most believe CEOs and NEOs are overpaid. In fact, when asked in 2008, even a third of corporate directors thought CEOs were overpaid ( Of course, pay has risen substantially since then. Let’s make 2012 the year “say on pay” has a real impact by ending the CEO pay surge.


  1. » The Potentially Binding Nature of Say on Pay - August 18, 2011

    [...] vote, instead of tossing their proxies. The United States Proxy Exchange recently published Shareowner Guidelines for Say-on-Pay Voting. I highly recommend them. Once you’ve read the guidelines, it will take about 5 minutes to [...]

  2. » ICGN Via Twitter - September 15, 2011

    [...] I think the slot machine analogy is perfect. These complex compensation systems are a crap shoot. There’s also the issue of continuously ratcheting pay that has led me to help the USPX draft Shareowner Guidelines for Say-on-Pay Voting. [...]

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