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Say on pay

Say on pay is a corporate governance practice that enables shareholders of public companies to cast non-binding advisory votes approving or rejecting proposed executive compensation packages, typically for the chief executive officer and other named executive officers, with the intent of aligning pay with performance and curbing perceived excesses. In the United States, this mechanism was mandated by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, requiring U.S. public companies to hold such votes at least every three years, alongside a separate frequency vote on the cadence of future say-on-pay votes and approvals for golden parachute payments in mergers. The votes, while advisory and not legally enforceable, have prompted companies to enhance disclosure, refine pay structures toward performance-based elements, and engage more with institutional investors, though empirical analyses indicate limited downward pressure on overall CEO pay levels, which have continued to rise across S&P 500 firms post-implementation. Proponents argue that say on pay fosters and influence, evidenced by high average approval rates exceeding 90% in early years but with increasing —reaching notable failures in cases of misaligned incentives or poor performance—leading boards to revise policies in response to "no" votes, such as reducing cash components or bolstering provisions. Critics, drawing from peer-reviewed studies, contend its impact remains marginal due to the non-binding nature, persistent upward trends in total compensation driven by grants and market dynamics, and peer effects that propagate high pay regardless of individual firm votes. Internationally, similar regimes predate U.S. adoption, as in the United Kingdom's regulations requiring annual advisory votes, yet cross-jurisdictional similarly reveals shifts in pay toward long-term incentives without substantially altering quantum or addressing root causes like concentrated or weak board oversight. Overall, while say on pay has elevated executive remuneration as a battleground for , causal assessments underscore its more in procedural than in fundamentally reshaping compensation .

Definition and Core Principles

Mechanism and Objectives

Say on pay constitutes a mechanism on the compensation policies and specific pay packages proposed for a company's senior executives, typically the and other named executive officers. This process involves shareholders casting advisory votes—typically approve, disapprove, or abstain—on the disclosures provided in the annual , which detail elements such as base salary, bonuses, equity awards, and performance metrics. In jurisdictions like the , where it was federally mandated under Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law on July 21, 2010, public companies must solicit these votes at least triennially, though many opt for annual frequency to maintain ongoing engagement. The votes are non-binding, lacking legal enforceability to override board decisions, but companies are required to report results in subsequent proxies and often respond to significant dissent (e.g., below 70% approval) through enhanced disclosures or compensation committee adjustments. The core objectives of say on pay center on enhancing influence over to better align it with corporate and long-term value creation, thereby addressing concerns over excessive or poorly structured pay that may incentivize short-termism or risk-taking misaligned with owner interests. Legislators and proponents, including those behind the Dodd-Frank provisions, aimed to increase and by compelling boards to justify pay relative to metrics like total return, revenue growth, or , with empirical analyses post-implementation showing correlations between low vote approvals and subsequent pay-for- recalibrations in affected firms. Additionally, it seeks to mitigate problems inherent in separated and , where executives might prioritize personal gain over wealth, as evidenced by pre-Dodd-Frank scandals involving multimillion-dollar payouts amid underperformance. While not designed to cap absolute pay levels, the mechanism encourages pay structures emphasizing deferred equity and provisions to tie rewards to sustained results, though critics note its advisory nature limits direct causal impact on outcomes.

Advisory vs. Binding Votes

Advisory votes on , commonly known as say-on-pay resolutions, allow shareholders to express approval or disapproval of a company's policies and practices without legally obligating the to implement changes. In the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 mandates non-binding advisory votes at least every three years for most public companies, with the clarifying that such votes do not require specific actions by the company or its board. These votes typically cover the compensation of named officers as disclosed in statements, and while non-binding, low approval rates—often below 70%—have prompted many firms to engage shareholders and adjust practices, as evidenced by post-vote disclosures required under rules. Empirical studies indicate that even advisory votes can reduce CEO pay by approximately 6.6% and boost firm value by 2.4% through anticipatory board adjustments to avoid dissent. Binding votes, in contrast, impose enforceable requirements, where rejection can prevent the or continuation of proposed compensation structures. Adopted in the since 2004 under the Dutch Corporate Governance Code, these votes grant shareholders direct veto power over executive pay plans, though empirical data shows rare actual rejections, with no recorded vetoes in the initial decade despite the mechanism's availability. Other jurisdictions, including and certain Swiss reforms, incorporate binding elements, such as mandatory approval for remuneration systems under the Swiss Ordinance Against Excessive Compensation in Listed Stock Corporations effective January 1, 2014. A cross-country of 37 say-on-pay adoptions found binding votes elicit stronger positive abnormal returns around announcement dates—averaging 1.2% higher than advisory votes—suggesting shareholders perceive them as more effective in aligning pay with performance due to heightened board accountability. The primary distinction lies in enforcement and potential consequences: advisory mechanisms prioritize dialogue and flexibility, mitigating risks of short-term shareholder pressures overriding long-term incentives, as boards retain discretion to justify or refine policies post-vote. Binding approaches enhance causal leverage over pay decisions but may introduce rigidity, with limited comparative empirical evidence due to varying implementation; one review notes scant data isolating binding effects, though available studies link them to greater reductions in excessive pay components like equity grants uncorrelated with firm performance. Hybrid models, such as the United Kingdom's framework under the 2013 Enterprise and Regulatory Reform Act, combine annual advisory votes on implementation reports with triennial binding votes on forward-looking policy, balancing input with enforceability—75% approval thresholds trigger re-submission obligations. Critics argue advisory votes' de facto influence stems from reputational costs and proxy advisor scrutiny rather than legal force, while binding votes risk overreach by dispersed shareholders lacking expertise in compensation design.

Historical Origins and Evolution

Pre-2000s Precursors

The emergence of say-on-pay practices drew from earlier reforms addressing executive remuneration excesses, particularly in the during the . The , published in December 1992 by the Committee on the Financial Aspects of , recommended that remuneration committees comprising independent non-executive directors be established to determine the pay of executive directors, aiming to mitigate conflicts of interest and enhance without direct mechanisms. This built on broader concerns over unchecked board in compensation, following scandals like the excesses in stock options and severance packages. The Greenbury Report of July 1995, commissioned amid public backlash against multimillion-pound stock option awards to executives at firms like , intensified focus on transparency and oversight. Chaired by Sir Richard Greenbury, it mandated detailed annual disclosures of directors' total , including performance criteria for incentives, and required remuneration committees to consist solely of non-executives with full board minutes access. While stopping short of mandating votes, the report urged companies to present remuneration reports at annual general meetings for discussion and feedback, stating that "shareholders should be provided with clear information" to assess pay policies, which fostered informal scrutiny as a precursor to formalized advisory votes. Implementation surveys by 1996 showed over 90% of FTSE 350 companies adopting committees, though compliance varied and pay levels continued rising, highlighting limits of disclosure without binding input. In the United States, precursors manifested through proposals under Rule 14a-8, enabling non-binding resolutions on compensation since the , though pay-specific ones proliferated in the early 1990s. These, often filed by individual activists like the United Shareholders Association, targeted firms with perceived excessive pay—such as golden parachutes or uncapped incentives—demanding caps, performance linkages, or clawbacks rather than holistic advisory votes on packages. For instance, between 1992 and 1996, dozens of proposals criticized high CEO salaries amid stagnant returns, garnering average support of 5-10% but influencing board adjustments in targeted companies like . Empirical analysis of 1992-2003 on management-sponsored pay plans revealed growing dissent, with "against" votes rising from under 5% to over 10% by the late 1990s, signaling pressure that presaged structured say-on-pay mechanisms. These efforts, concentrated in underperforming firms with high pay-to-performance gaps, underscored causal links between weak and inflation but achieved modest reforms absent regulatory mandates.

Post-2008 Financial Crisis Acceleration

The intensified scrutiny of practices, as revelations of multimillion-dollar payouts to executives at bailed-out firms like AIG and fueled public and demands for greater accountability. Amid widespread economic fallout—including a U.S. peak of 10% in 2009—critics argued that misaligned incentives contributed to risk-taking, prompting legislative responses to empower s. This period marked a shift from voluntary shareholder proposals, which garnered average support of 41.7% in 2008, to mandatory mechanisms. In the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, 2010, accelerated adoption through Section 951, mandating non-binding advisory votes on for most public companies at least every three years, alongside frequency and votes. The SEC proposed implementing rules on October 18, 2010, and finalized them on January 25, 2011, requiring the first say-on-pay votes in the 2011 proxy season for shareholders of record as of January 21, 2011. This provision applied to all -registered companies, excluding smaller reporting issuers, and aimed to enhance governance without regulating pay levels directly. Internationally, the crisis prompted enhancements to existing frameworks and new adoptions. In the , where advisory votes had existed since 2002 under the Higgs Report, post-crisis reforms culminated in the 2013 Enterprise and Regulatory Reform Act, introducing binding votes on pay policy every three years and annual advisory votes on implementation, effective for financial years starting after 2013. Similar accelerations occurred elsewhere, such as Australia's 2011 advisory vote requirement for ASX 300 companies following the Productivity Commission's recommendations, reflecting a global push for influence amid crisis-induced distrust. These measures built on pre-crisis precursors but gained urgency from of pay persistence despite performance declines, with U.S. CEO compensation dropping to $7.7 million average in from 2000 peaks yet rebounding sharply thereafter.

Global Adoption and Variations

United States Implementation

The implemented say-on-pay requirements through Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, 2010, which directed the to promulgate rules mandating non-binding advisory votes on . The SEC adopted final rules on January 25, 2011, effective for annual or other meetings occurring on or after January 21, 2011, requiring public companies subject to the proxy rules under Section 14(a) of the to include a say-on-pay vote at least once every three years, covering the compensation of named executive officers as disclosed pursuant to Item 402 of Regulation S-K. These votes apply to all issuers filing proxy statements, including smaller reporting companies and controlled companies, though emerging growth companies received a temporary exemption until their third year post-IPO under the JOBS Act of 2012. The rules specify three distinct advisory votes: the core say-on-pay vote on packages; a say-on-frequency vote allowing s to indicate preferences for conducting say-on-pay votes annually, biennially, or triennially; and say-on-golden-parachute votes approving compensation arrangements for named executive officers in connection with merger or acquisition transactions. Companies must hold say-on-frequency votes at least every six years, regardless of prior preferences, and disclose in subsequent statements the frequency adopted and how prior say-on-pay results were considered in determining compensation, without requiring specific changes based on vote outcomes due to the advisory nature. Brokers are prohibited from voting uninstructed shares on say-on-pay matters, ensuring votes reflect informed intent. Implementation has achieved near-universal compliance among applicable public companies since the 2011 proxy season, with initial data showing approval rates exceeding 95% for S&P 500 firms in the first year, though a small percentage of failures—such as 4 out of approximately 2,700 votes in 2011—prompted boards to engage shareholders and revise pay structures. Empirical patterns indicate most large U.S. companies have adopted annual say-on-pay votes following frequency determinations, with triennial options common among smaller firms to balance shareholder input and administrative costs. In 2022, the SEC enhanced transparency by amending Form N-PX to require institutional investment managers exercising discretion over at least $100 million in assets to report say-on-pay voting records annually, aiming to improve oversight without altering the core advisory framework. No material repeals have occurred despite periodic legislative scrutiny, maintaining the regime's structure as of 2025.

United Kingdom and Australia

In the , say on pay provisions originated with the Directors' Remuneration Report Regulations 2002, which mandated quoted companies to include a in their annual accounts and subject it to an annual advisory vote at the annual general meeting. These regulations aimed to enhance following corporate scandals, requiring detailed of pay components, targets, and comparative data over five years. approval was non-binding, with failure rates remaining low—typically under 10% opposition—indicating limited rebukes despite occasional high-profile dissent, such as at in 2012 where 59% voted against. Reforms enacted via the Enterprise and Regulatory Reform Act 2013 strengthened the regime by introducing a binding vote on the company's forward-looking , renewable every three years unless material changes occur, while retaining the annual advisory vote on implementation. The vote requires at least 50% approval for validity, with non-compliance risking legal challenges or ; subsequent updates in 2018 via the Corporate Governance Code emphasized engagement post-failure, mandating explanations for significant opposition. As of 2023, binding votes have seen approval rates above 90% for FTSE 350 firms, though advisory votes occasionally fail, prompting pay restructurings in cases like 2021 protests at companies such as . Australia adopted mandatory say on pay in 2011 through the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) , requiring ASX-listed disclosing entities to submit their for an annual advisory vote, with disclosures covering pay structures, linkages, and peer . Unlike purely advisory models elsewhere, Australia's "two-strikes" rule imposes consequences: a first occurs if 25% or more votes oppose the , triggering enhanced disclosures and engagement; a second consecutive mandates a board spill at the next AGM, where all directors face re-election by , potentially ousting the board if unsuccessful. The regime applies to all listed companies except those with under AUD 1 million revenue in certain cases, with over 20 first strikes recorded by 2023 but only a handful of spill resolutions, such as at in 2017 where the board was replaced. Exemptions exist for first-year listings, and votes exclude certain institutional holders like superannuation funds under specific conditions; empirical data show strikes correlating with poor pay-for-performance alignment, leading to moderated CEO pay growth post-2011, though total compensation levels have not declined substantially. Regulatory oversight by the Australian Securities and Investments Commission ensures compliance, with ongoing reviews confirming the rule's role in curbing excesses without excessive disruption.

European Union Directives

The Shareholder Rights Directive II (SRD II), formally Directive (EU) 2017/828, adopted on May 17, 2017, and published in the Official Journal on June 7, 2017, amended the original 2007 Shareholder Rights Directive to incorporate provisions granting shareholders a "say on pay" regarding in publicly listed companies on regulated markets. These measures require member states to ensure shareholders vote on the company's policy for directors at least every four years or upon material changes, with member states determining whether the vote is binding or advisory; the policy must outline the nature of , including fixed and variable components, periods for equity-based pay, and criteria promoting long-term interests. Additionally, shareholders must approve an annual report detailing actual payments to directors, implemented prospectively from the policy's adoption date, though this vote is advisory and does not affect the validity of payments. SRD II mandates detailed disclosures in both the policy and report, including individual breakdowns of remuneration by type (e.g., base salary, bonuses, stock awards), ratios between CEO and average employee pay where relevant, and explanations of how pay aligns with company performance and ; deviations from approved policies require separate approval. The directive applies to all member states, which were required to it into national law by June 10, 2019, leading to varied implementations: for instance, countries like the and opted for binding policy votes in some cases, while others such as and retained advisory mechanisms, building on pre-existing national say-on-pay rules. Reports must be retained for ten years post-approval, and institutional investors face obligations on policies to foster long-term engagement, though enforcement relies on national regulators without direct EU-level penalties. The provisions emerged in response to the , aiming to curb excessive linked to short-termism and risk-taking, but empirical reviews indicate incomplete harmonization across the due to national flexibilities, with some states exempting smaller listed firms or applying lighter disclosure rules. By 2020, transposition was largely complete, though challenges persisted in cross-border voting facilitation and proxy advisor compliance, as noted in (ESMA) monitoring. SRD II does not impose pay caps or prescribe specific structures, leaving substantive design to companies while emphasizing shareholder oversight to align incentives with sustainable value creation.

Switzerland and Germany

In , voters approved the against excessive , known as the Abzockerinitiative, on March 3, 2013, leading to a that mandated votes on . The Federal Ordinance Against Excessive Remuneration in Stock Corporations (OaEC), enacted to implement this amendment, entered into force on January 1, 2014, applying to all Swiss companies listed on any . Under the OaEC, must approve, via annual votes at the general meeting, the aggregate cash and in-kind compensation for the and collectively, as well as specific approvals for related to new board or hires, sign-on bonuses, payments exceeding two annual salaries, and payments tied to acquisitions or disposals. The ordinance also prohibits advance payments, indemnities not approved in advance, and performance-based bonuses linked to third-party transactions, with violations rendering corporate decisions null and exposing board members to liability. These binding votes have influenced compensation practices, with studies showing negative share price reactions to their introduction and subsequent adjustments in pay structures to align with preferences, though on long-term firm performance remains mixed. In practice, Swiss listed firms report high approval rates for pay proposals post-2014, averaging over 90% in early years, attributed to pre-vote consultations with major investors. In , say-on-pay provisions originated with the Act on the Appropriateness of Executive Board Remuneration (VorstAG) of July 5, 2009, which required listed companies to hold an annual advisory vote on the management board's overall compensation system under Section 120a of the German Stock Corporation Act (AktG). This vote, non-binding and without legal consequences for compensation decisions, aimed to enhance and input while preserving authority over pay setting. The must consider vote outcomes but retains discretion, with empirical analyses indicating responsiveness primarily in redesigning packages for new executives rather than altering existing ones. The Second Act Implementing the Shareholder Rights Directive (ARUG II), adopted in December 2019 and effective January 1, 2020, further aligned rules with EU Shareholder Rights Directive II (SRD II) by mandating advisory votes on both the remuneration policy (at least every four years or upon material changes) and the annual implementation report detailing actual payments to board members. These votes, conducted at annual general meetings starting in 2020, remain non-binding, requiring companies to disclose and justify any deviations from the policy in subsequent reports, with no automatic nullification of pay decisions. ARUG II also caps variable remuneration that can be reclaimed post-payment at two years' worth in cases of , reinforcing without imposing direct veto power. data post-2020 shows most firms achieving approval rates above 90%, though low votes have prompted policy revisions in isolated cases.

Other Jurisdictions

In , say on pay votes are not mandated by federal securities law for most public companies, though many issuers listed on the voluntarily hold non-binding advisory votes on , typically every three years. Federally regulated , however, face requirements from the Office of the Superintendent of Financial Institutions to include annual non-binding votes on remuneration approaches as part of broader disclosures. These practices emerged post-2011, driven by pressure rather than , with support levels averaging above 90% in recent years for compliant firms. Japan requires listed companies to obtain approval at annual general meetings for the aggregate of directors and officers as a group, pursuant to Article 361 of the Companies Act, rather than detailed individual or policy-level votes. This mechanism, in place since the 2006 Companies Act revision, limits granular scrutiny but has led to rejections in cases of perceived excess, such as at in 2015 where s withheld approval amid scandal revelations. Unlike advisory models elsewhere, failure to secure approval invalidates the compensation resolution, enforcing stricter discipline on total pay ceilings. In , public companies must submit policies and individual pay proposals for annual binding shareholder votes under Resolution 3.921/2010 of the Brazilian Securities and Exchange Commission (CVM), applicable to firms with significant . Votes cover both (every year) and implementation reports (biennially), with low support triggering explanations or revisions; dissent rates have risen to 10-15% in recent proxy seasons for firms with misaligned incentives. This mandatory framework, introduced in 2010, contrasts with advisory norms by allowing shareholders to veto specific elements like golden parachutes. South Africa's Stock Exchange-listed companies are required under the King IV Code (effective 2017) to table remuneration policies for non-binding advisory votes at each , alongside annual votes on implementation reports. Proposed 2024 amendments to the Companies Act would strengthen this by mandating detailed disclosures and binding elements for excessive pay, responding to prior activism where votes failed at firms like Steinhoff in 2018 due to transparency lapses. Compliance remains principle-based, with non-adherence risking reputational costs rather than legal penalties. In , no mandatory say on pay regime exists; instead, the (Section 197) triggers ordinary resolution approval only if managerial exceeds 11% of net profits for certain firms, focusing on caps rather than advisory policy votes. This threshold-based approach has limited shareholder influence, with rare invocations amid concentrated ownership, though Securities and Board of India guidelines encourage voluntary disclosures. Similar gaps persist in other emerging markets like and , where say on pay remains absent or voluntary despite global convergence pressures.

Empirical Assessments of Effectiveness

Impacts on

Empirical studies indicate that say-on-pay () votes exert a moderating influence on growth, particularly following instances of low support. Firms experiencing high levels of opposition, such as below 70% approval, subsequently exhibit lower rates of CEO pay increases and reduced excess pay relative to peers. For example, analysis of U.S. data post-Dodd-Frank Act implementation in 2011 shows that negative SOP outcomes prompt boards to curb pay escalation, with one study estimating an average CEO pay reduction of approximately 6.6% attributable to the SOP mechanism's disciplinary effect, despite its advisory nature. This impact stems from reputational pressures and the threat of sustained dissent, leading to proactive adjustments even without formal binding constraints. In terms of pay structure, votes have incentivized shifts toward greater alignment with interests, including increased emphasis on performance-based s over fixed or guaranteed elements. Companies responding to failed votes—defined as less than 50% support—frequently revise compensation designs, such as enhancing long-term plans tied to return or relative performance metrics, and improving . Peer effects amplify this, as firms observing weak results among compensation peers implement relative pay reductions to preempt similar scrutiny. However, aggregate data from firms reveal that CEO pay levels continued to rise post- adoption, with median compensation increasing from about $10.6 million in 2011 to over $15 million by 2023, though at a decelerated pace for top-decile earners. Meta-analyses and cross-country comparisons underscore 's limited but targeted efficacy in addressing pay-performance misalignment, particularly when shareholders vote against packages where executive gains outpace firm outcomes. In jurisdictions like the U.S. and U.K., where has been in place since and respectively, dissent correlates with diminished reliance on subjective metrics in pay determinations, fostering more objective, quantifiable criteria. Yet, high average approval rates—around 90% for votes—suggest that the mechanism validates most packages while constraining outliers, without broadly suppressing compensation in high-performing firms.

Effects on Corporate Governance

Say on pay provisions have augmented shareholder oversight of executive compensation committees, compelling boards to demonstrate stronger linkages between pay and performance to mitigate dissent risks. Empirical evidence from U.S. firms post-Dodd-Frank Act implementation in 2011 shows that low approval rates—typically below 70%—prompt compensation adjustments, such as reduced cash components or enhanced performance metrics, in approximately 80% of cases, thereby reinforcing board accountability without binding authority. This mechanism interacts with preexisting governance structures, amplifying effects in firms with robust board but yielding diminished in those dominated by overcompensated CEOs or concentrated . A of listed companies from 2013 to 2016, using linear regressions on pay sensitivity metrics, confirmed say on pay's role in elevating pay-for-performance , though moderated by type and excess pay levels. Similarly, cross-firm studies reveal industry peer effects, where unaffected companies curtail CEO pay growth by 2-5% relative to scrutinized peers, indicating indirect discipline through competitive . Shareholder engagement has intensified as a , with institutional investors leveraging votes to initiate dialogues on pay rationale, evidenced by a rise in pre-vote consultations from under 20% in 2010 to over 60% by 2020 among firms facing prior failures. However, early U.S. data from staggered adoptions under Dodd-Frank documented unintended increases in total CEO pay by 5-10% and performance-linked portions in compliant firms, attributed to proactive board enhancements rather than restraint, highlighting causal ambiguities in reforms. Recent assessments, including those partitioning by governance quality, suggest say on pay bolsters ancillary outcomes like financial reporting when boards are receptive, yet its advisory status confines impacts to reputational channels, with limited spillover to non-compensation domains.

Correlations with Firm Performance

Empirical research indicates a strong between prior firm underperformance and higher dissent in say-on-pay votes, with negative stock returns and low returns on assets prompting increased opposition regardless of compensation levels. For instance, a one-standard-deviation decline in economic can elevate vote opposition by up to 42%, suggesting votes often serve as mechanisms rather than predictive drivers of future outcomes. Some studies report modest positive associations between say-on-pay implementation and subsequent firm performance metrics. In a regression discontinuity analysis of U.S. firms with close proposals (2006–2010), passage of say-on-pay rules correlated with cumulative abnormal stock returns of 3.8% in the week following votes and improvements in , , and sales per worker (21.5% increase one year post-vote). Similarly, cross-country evidence links mandatory say-on-pay adoption to average firm value increases of 2.4%, alongside CEO pay reductions of 6.6%, though effects vary by vs. advisory vote structures. In Anglo-Saxon economies, say-on-pay votes show positive correlations with efficiency measures, including return on invested capital (coefficients of 0.099–0.110) and (1.714–1.957), using instrumental variable approaches to address . However, such links are context-dependent; in settings with overcompensated executives or owner-managed firms, alignment benefits diminish, and votes may induce short-termism by heightening focus on near-term stock prices over long-run value creation. Overall, while correlations exist—primarily with past performance influencing and select evidence of forward-looking efficiency gains—causal impacts on sustained firm performance remain limited and debated, with methodological challenges like reverse and complicating interpretations across jurisdictions.

Criticisms and Unintended Consequences

Academic and Empirical

Academic has identified several limitations in the effectiveness of say on pay mechanisms, particularly in altering levels or structures in a manner that demonstrably enhances . Empirical analyses, including a meta-review of 29 studies, indicate no significant reduction in CEO pay following the adoption of say on pay, with an effect size showing negligible impact on compensation magnitude. For instance, post-Dodd-Frank Act implementation in 2011, median CEO total compensation for top firms rose by 16% in 2013 alone, continuing an upward trajectory despite widespread adoption of advisory votes. Similarly, studies post-2002 regulations found no change in CEO pay levels or growth rates attributable to say on pay. A recurring empirical is the exceptionally high approval rates for say on pay proposals, often exceeding 90% annually, which suggests limited disciplinary power or engagement beyond routine endorsement. Low-support votes (below 80%) are rare and frequently correlate more strongly with firm underperformance than with compensation excesses; for example, negative votes double when high pay coincides with poor economic results compared to strong performance scenarios. This implies that say on pay functions less as a targeted of pay practices and more as a for broader dissatisfaction with operational outcomes, undermining its intended role in pay oversight. scholars have noted that such patterns render the mechanism symbolically ritualistic rather than causally influential on pay design. Further skepticism arises from evidence of minimal post-vote adjustments in pay practices independent of performance metrics. While some firms shift toward equity-heavy structures after low-support votes, show no corresponding in total pay or improvements in pay-for-performance that persist beyond cosmetic disclosures. empirical work confirms no discernible effect on CEO pay levels or relative to non-say-on-pay firms, with reactions to vote exemptions indicating superficial rather than substantive reliance on the votes. These findings, drawn from event studies and longitudinal regressions, challenge assumptions of say on pay as an robust governance tool, positing instead that entrenched board dynamics and passivity dilute its potential.

Potential for Shareholder Activism Overreach

Critics contend that say-on-pay provisions, by amplifying shareholder voices through advisory votes, create opportunities for activist investors to extend influence into areas beyond executive remuneration, such as embedding (ESG) criteria into compensation structures. This can manifest as pressure on boards to tie pay to non-financial metrics like diversity targets or carbon reduction goals, even when such linkages lack direct causal ties to firm value creation. For instance, proxy advisory firms like (ISS) and increasingly factor ESG performance into their say-on-pay recommendations, influencing passive investors who follow these guidelines and potentially prioritizing ideological agendas over operational priorities. Such dynamics have drawn for enabling overreach, as low say-on-pay vote —often below 70%—serves as a for activists to demand broader reforms, including board composition changes or strategic shifts unrelated to pay equity. In the 2025 U.S. season, while average say-on-pay approval remained high at around 90% for firms, instances of dissent were linked to perceived shortcomings in ESG-aligned incentives, allowing activists to frame compensation failures as symptomatic of wider deficiencies. Congressional hearings have highlighted this as part of a "proxy advisory ," where firms like ISS exert outsized control, recommending against pay packages for reasons extending to social issues, despite limited empirical evidence that integration enhances long-term returns. Furthermore, the mechanism fosters short-termism, as annual say-on-pay votes—pushed by guidelines—incentivize executives to prioritize quarterly metrics or activist-pleasing adjustments over sustained , undermining board autonomy. SEC commentary has noted this risk, observing that frequent voting cycles correlate with heightened that favors immediate concessions over strategic patience. Empirical analyses reinforce concerns, showing that activist campaigns leveraging say-on-pay often target firms for quick wins, with compensation critiques serving as entry points for demands that dilute focus on core profitability. This potential for overreach is compounded by the advisory nature of votes, which, while non-binding, trigger reputational and regulatory pressures, as repeated failures can invite clawbacks or litigation under frameworks like Dodd-Frank.

Limitations in Binding Pay Discipline

Despite its aim to impose oversight on , say-on-pay voting has exhibited significant limitations in achieving pay discipline, primarily due to its advisory nature in jurisdictions like the , where Dodd-Frank Act provisions mandate non-binding votes without requiring alterations to compensation plans following disapproval. This lack of legal enforceability allows boards to disregard negative outcomes, with empirical analyses indicating that even firms receiving low approval—defined as below 70% support—rarely implement substantive reductions in CEO pay, often opting for minor disclosure enhancements or procedural tweaks instead. For instance, post-vote adjustments in failed cases have averaged less than 5% in total compensation cuts, insufficient to counteract broader upward trends in pay. Approval rates further undermine disciplinary potential, with over 90% of U.S. say-on-pay proposals passing since 2011, and outright failures (under 50% support) occurring in fewer than 2% of votes annually, reflecting passivity or coordination challenges rather than rigorous scrutiny. This high baseline forgiveness persists even amid pay-for-performance misalignments, as votes require "extraordinary" pay premiums—often exceeding 20% above peers—to trigger majority opposition, allowing entrenched compensation practices to endure. Studies attribute this to information asymmetries, where complex incentive structures obscure rent extraction, and to bundled voting formats that dilute focus on pay specifics. Empirical assessments reinforce these constraints, showing no systematic compression or reduction in CEO pay levels following say-on-pay adoption; median U.S. CEO total compensation rose from $9.7 million in to $14.5 million by , uncorrelated with outcomes. One analysis of over 3,000 firms found that say-on-pay exerts negligible downward pressure on pay quantum, with any observed adjustments (e.g., a 6.6% dip in variants) offset by anticipatory increases or spillover leniency toward peers. Moreover, board capture—where directors, often aligned with through ties or fees—mitigates , as reputational costs from failures prove transient and rarely lead to resignations or structural reforms. These dynamics highlight say-on-pay's role as a signaling rather than a constraint, vulnerable to circumvention in environments prioritizing managerial discretion.

Case Studies and Shareholder Actions

Prominent Vote Rejections

One prominent rejection occurred at in June 2025, where shareholders voted against CEO David Zaslav's $51.9 million compensation package, with approximately 59.5% opposing (1,063,214,128 votes against versus 724,453,004 in favor). The opposition stemmed from concerns over executive pay amid the company's ongoing struggles post-2022 merger, including content write-downs and subscriber losses, despite a reported net loss of $10.2 billion in 2023. Norfolk Southern faced a resounding failure in its 2024 say-on-pay vote, receiving only 28% support following the 2023 that drew intense scrutiny over safety and leadership accountability. CEO Alan Shaw's package, valued at $14.9 million, was criticized for insufficient linkage to operational improvements and , with institutional investors like proxy advisors citing pay-for-performance disconnects exacerbated by regulatory fines exceeding $600 million. Bio-Techne Corporation's 2024 vote garnered just 35% approval, highlighting shareholder dissatisfaction with CEO Chuck Kummeth's $10.2 million pay amid stagnant revenue growth and acquisition-related integration issues. Critics pointed to over-reliance on time-based awards without robust performance hurdles, as evidenced by the company's underperforming biotech peers by 15% over the prior year. Palo Alto Networks also saw a failed 2024 vote with 42% support for CEO Nikesh Arora's $25.3 million package, driven by perceptions of excessive stock grants during a period of decelerating growth and margin pressures in cybersecurity markets. The rejection underscored broader investor concerns about "mega-grants" diluting , with the company's one-time award structure amplifying dissent from major funds. Earlier high-profile cases include Bed Bath & Beyond's 2017 failure, where 62% voted against amid years of declining sales and executive turnover, prompting subsequent pay cuts of up to 50% for top executives. These rejections often correlate with special awards or misaligned incentives, as analyzed in post-mortem studies of over 70 failures from 2011-2012, where 83% involved bottom-quartile peer performance rankings.

Board and Firm Responses to Low Support

Boards and firms typically respond to low say-on-pay vote support—often defined as below 50% approval, though thresholds like 70% or 80% may trigger action—through a combination of shareholder outreach and program adjustments, despite the advisory nature of the vote. Compensation committees prioritize post-vote engagement with institutional investors and proxy advisors such as (ISS) and to diagnose issues like perceived pay-for-performance misalignment or one-time awards. This step, conducted promptly after proxy filings reveal vote tallies, informs targeted revisions and helps mitigate risks of director vote-withhold campaigns or repeated failures. Common plan design changes include shifting toward higher at-risk compensation, such as increasing long-term incentives tied to relative total shareholder return (TSR) or earnings per share (EPS) metrics, while reducing base salaries or guaranteed bonuses. A 2024 analysis of companies failing to secure majority support found that over 60% implemented such modifications, alongside simplifying structures to address complexity critiques from advisors. Enhanced disclosure in the following year's proxy statement—detailing engagement outcomes, rationale for retained elements, and specific alterations—serves as a key accountability mechanism, with Equilar's review of 77 low-support cases in 2023 showing 85% included expanded governance narratives. In sectors like , responses often emphasize peer adjustments; a study of firms receiving under 70% support from 2014–2019 revealed 75% revised metrics or caps on payouts post-engagement. Boards may also replace compensation consultants or refresh committee membership to signal reform, though empirical evidence indicates these steps correlate with higher subsequent approval rates only when paired with substantive pay realignments. Non-responses risk escalation, as sustained low support has led to director resignations in isolated cases, underscoring the vote's indirect disciplinary influence.

Recent Trends and Future Outlook

2020s Voting Patterns

Shareholder support for say-on-pay proposals during the has remained robust, with average approval levels for Russell 3000 companies consistently hovering around 90 percent across the decade. For instance, in 2023, average support stood at 90 percent, marking a slight increase from 89 percent in 2022. This pattern reflects broad shareholder acceptance of disclosures when perceived as aligned with performance, even amid economic disruptions such as the and subsequent inflation. Failure rates—defined as proposals receiving less than 50 percent support—have been low overall but exhibited variation early in the decade. In , approximately 2.3 percent of Russell 3000 say-on-pay votes failed, a figure slightly below the prior year's rate. However, recorded elevated scrutiny, with failure rates rising to 2.5 percent for all-size companies and reaching 3 to 5 percent in subsequent years through 2023, driven by concerns over pandemic-era pay adjustments and perceived disconnects between executive rewards and firm outcomes. (ISS) issued "against" recommendations at a rate of 12.1 percent in , up marginally from 11.6 percent in , correlating with these heightened dissent levels. By 2024 and , failure rates stabilized at approximately 1 percent for 3000 companies, with 14 failures (0.9 percent) in 2024 and a comparable trajectory in , where 23 companies (1.2 percent) had failed by mid-year. Average support in reached 90.6 percent for 3000 firms and 89.5 percent for companies through August, though median support dipped slightly to 94.5 percent from 94.9 percent in 2024. Proposals receiving negative ISS recommendations garnered 26 percent lower support on average, underscoring the advisory firms' influence on voting outcomes. Despite occasional low-support cases tied to specific pay-for-performance misalignments, the overwhelming passage rate indicates that say-on-pay votes primarily serve as a check rather than a frequent mechanism.

Emerging Research and Policy Debates

Recent empirical research has explored the causal links between say-on-pay (SOP) voting outcomes and firm behaviors beyond compensation design. A 2025 study analyzing U.S. firms found that higher shareholder support in SOP votes correlates with increased innovation output, as evidenced by greater numbers of patent applications and forward citations per patent in the following years, suggesting that aligned incentives foster risk-taking in R&D. Similarly, evidence from post-2011 SOP implementation indicates that firms receiving above-industry-average SOP approval subsequently pursue more mergers and acquisitions, with deal volume rising by approximately 10-15% relative to peers, implying that strong shareholder endorsement signals confidence in executive decision-making. These findings challenge earlier skepticism by demonstrating tangible effects on strategic resource allocation, though causal inference relies on difference-in-differences models accounting for firm fixed effects and governance controls. Peer benchmarking dynamics have also emerged as a in recent analyses. published in 2020, drawing on through the late , shows that SOP votes induce relative CEO pay reductions via heightened scrutiny of comparisons; firms facing low SOP support adjust downward by 5-8% more than high-support peers in subsequent cycles, driven by boards' efforts to mitigate dissent risks. Complementary work examines SOP's role in turnover, finding that votes below 70% support elevate forced CEO departure probabilities by 20-30% within two years, indicating boards' responsiveness to signals as a disciplinary . However, these effects vary by institutional ownership concentration, with dispersed shareholders exerting weaker influence, highlighting limitations in advisory votes' . Policy debates in the 2020s center on SOP's adequacy amid stagnant dissent rates and evolving norms. In the 2025 U.S. proxy season, SOP failure rates held at 1%, matching 2024 levels but below the 3-5% peaks of 2021-2023, with average Russell 3000 support at 90.9%—the highest since 2017—prompting questions about whether low opposition reflects genuine pay alignment or complacency in advisory structures. Critics argue that non-binding votes insufficiently curb excesses, as evidenced by persistent high CEO-to-median-employee pay ratios exceeding 300:1 in firms, fueling calls for mandatory frequency adjustments or hybrid binding elements akin to the UK's annual votes since 2013. Proponents counter that SOP has shifted power toward institutional investors without regulatory overreach, yet debates intensify over integrating SOP with rules under updated guidelines, where incomplete disclosure of performance adjustments contributed to 2022's dissent spike. Internationally, emerging markets' adoption of SOP-like disclosures shows mixed liquidity and performance gains, but weak institutional enforcement undermines efficacy, underscoring the need for context-specific reforms.

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