Should New Zealand Adopt Say on Pay?

New Zealand Business Law Quarterly, Vol. 19, No. 3, 2013

32 Pages Posted: 24 Jul 2013

See all articles by Randall S. Thomas

Randall S. Thomas

Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)

Susan Watson

University of Auckland Faculty of Law

Multiple version iconThere are 2 versions of this paper

Date Written: July 23, 2013


Around the globe, the latest fashion in corporate governance circles is “Say on Pay,” a shareholder vote – sometimes precatory, other times mandatory – on CEO remuneration. Country after country has adopted Say on Pay in response to shareholder disgust over the size of CEO pay packets. Beginning with the U.K., and later followed by the Netherlands, Australia, Sweden, Norway, Belgium, France, Switzerland, and the U.S., there has been a widespread acceptance of the shareholder vote on executive pay around the world. In this article, we ask the question: Should New Zealand follow the crowd and adopt Say on Pay, or should it continue down its own path, leaving directors with near total control over executive remuneration levels? Academics are divided over the desirability of Say on Pay – those that believe in strong managerial power are firmly against it, while shareholder activists come out heavily in its favor. The main theoretical arguments revolve around whether: it will tip the balance of power against managers; shareholders are competent to evaluate executive remuneration; third party voting advisors will gain too much power if it is enacted; there will be any reduction in the size, and rate of growth, of CEO pay packets; and it will strengthen the relationship between pay and performance.

The experience in the U.K. and the U.S. to date sheds some light on the validity of these arguments. On average, shareholders have voted strongly in favor of executive pay practices at most companies. Say on Pay seems to have had little impact on the size and growth of average CEO pay, but it does appear to have impacted pay practices at poorly performing companies that have unusually high pay. There is a greater level of engagement between shareholders and managers on pay issues at many companies, and firms have become more responsive to negative shareholder Say on Pay votes. Third party voting advisors, such as Institutional Shareholder Services, have become important corporate governance players, whose recommendations have a significant impact on shareholder voting outcomes.

In light of these academic arguments, and practical experience in the U.K. and U.S., we believe that New Zealand should carefully consider whether to adopt Say on Pay. We do not view the evidence as compelling the conclusion that Say on Pay is essential, but we can understand why some shareholders might want to see it implemented. However, the existing evidence shows that it is unlikely to have a big effect on current pay practices at most companies in New Zealand if it is adopted.

Keywords: corporate governance, executive compensation, Say on Pay

Suggested Citation

Thomas, Randall S. and Watson, Susan Mary, Should New Zealand Adopt Say on Pay? (July 23, 2013). New Zealand Business Law Quarterly, Vol. 19, No. 3, 2013. Available at SSRN:

Randall S. Thomas

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

European Corporate Governance Institute (ECGI)

B-1050 Brussels

Susan Mary Watson (Contact Author)

University of Auckland Faculty of Law ( email )

Private Bag 92019
Auckland Mail Centre
Auckland, 1142
New Zealand

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