What is a Say-on-Pay Vote?
Shareholder Say-on-Pay votes ask investors to vote on the compensation of the top executives of the company – the CEO, the Chief Financial Officer, and at least three other most highly compensated executives. (These are called the “named executive officers” or NEOs).
Typically, the focus is on the Chief Executive Officer’s (CEO) pay, but there are instances where shareholders may feel that the broader NEO team’s compensation is not aligned.
Is a Say-on-Pay Vote binding?
Say-on-Pay votes are typically non-binding. These means that unlike the conventional binding voting mechanism, the vote tally does not directly determine the outcome.
So, in the event that a company’s shareholders don’t approve a Say-On-Pay vote, the company doesn’t have to act on that vote (i.e. they don’t need to change their compensation plans).
What happens if Say-on-Pay fails?
While Say on Pay is a non-binding, advisory vote, failure reflects shareholder dissatisfaction with executive pay or company performance. Companies that fail Say on Pay tend to increase the proportion of long-term incentive plan grants strictly tied to performance.
How often do Say-on-Pay votes occur?
US public companies must hold Say-on-Pay votes at least once every 3 years. However, many will hold it more frequently. In addition, companies may hold shareholder votes to determine the frequency of their Say-on-Pay voting. Typically, best practice is considered to be an annual
Which companies failed Say-on-Pay votes in 2022?
More from Boardroom Alpha
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Additional References on Say-on-Pay Votes
- via Boardroom Alpha: A Closer Look at Say-on-Pay Failures
- via Harvard Law School Forum on Corporate Governance: Say on Pay: Is It Needed? Does it Work?
- via SEC: Investor Bulletin: Say-on-Pay and Golden Parachute Votes
- via Sidley: SEC Adopts Final Rules That Will Require the Recovery of Erroneously Awarded Compensation
- via CNN: Starbucks shareholders reject CEO pay proposal in rare move
- via Forbes / Okapi: New SEC Rule Highlights Executive Compensation Versus Performance