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http://ssrn.com/abstract=1262867
 
 

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'Say on Pay': Cautionary Notes on the UK Experience and the Case for Shareholder Opt-In


Jeffrey N. Gordon


Columbia Law School; European Corporate Governance Institute (ECGI)

August 2009

Columbia Law and Economics Working Paper No. 336
ECGI - Law Working Paper No. 117/2009

Abstract:     
Shareholder and public dissatisfaction with executive compensation has led to calls for an annual shareholder advisory vote on a firm's compensation pratices and policies, so-called "say on pay." Proposed federal legislation would mandate "say on pay" generally for US public companies. This paper assesses the case for such a mandatory federal rule in light of the UK experience with a similar regime adopted in 2002. The best argument for a mandatory rule is that it would destabilize pay practices that have produced excessive compensation and that would not yield to firm-by-firm pressure. This has not been the UK experience; pay continues to increase. The most serious concern is the likely evolution of a "best compensation practices" regime which would embed normatively-opinionated practices that would ill-suit many firms. There is some evidence of a UK evolution in that direction. This problem might be more pronounced in the US because US shareholders are even more likely than their UK counterparts to delegate judgements over compensation practices to a small number of proxy advisors who themselves will be economizing on analysis. The paper argues instead for a federally provided shareholder opt-in right to a "say on pay" regime, which would change the present reliance on precatory proposals in the issuer proxy which are in turn subject to the power delegated to shareholders under state law. Secondarily, the paper argues that any mandatory regime should be limited to the 500 the largest public companies by public market float and not cover the other 13,500 firms that make public disclosure. Compensation practices at key financial firms present a distinct set of safety and soundness issues because of potential systemic risk from a failure of such firms. These risks should be separately addressed.

Number of Pages in PDF File: 47

Keywords: executive compensation, corporate governance, shareholder voting

JEL Classification: G30, G34, K20, K22, J33, M14, M52

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Date posted: September 15, 2008 ; Last revised: August 11, 2009

Suggested Citation

Gordon, Jeffrey N., 'Say on Pay': Cautionary Notes on the UK Experience and the Case for Shareholder Opt-In (August 2009). Columbia Law and Economics Working Paper No. 336; ECGI - Law Working Paper No. 117/2009. Available at SSRN: http://ssrn.com/abstract=1262867 or http://dx.doi.org/10.2139/ssrn.1262867

Contact Information

Jeffrey N. Gordon (Contact Author)
Columbia Law School ( email )
435 West 116th Street
Ctr. for Law and Economic Studies
New York, NY 10027
United States
212-854-2316 (Phone)
212-854-7946 (Fax)
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
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