How To Make The Best Of ‘Say On Pay’

by Donald Delves for Forbes, November 10th, 2010.

It’s all about better, more open communication than ever before.

The new federal requirement that public companies hold nonbinding shareholder votes on proposed executive compensation plans (the votes are known as “say on pay”) creates considerable challenges for corporate leaders. Image damage from “no” votes could be severe in today’s turbulent corporate governance environment, so companies must now become far more assertive in explaining how their top executives are paid.

This provision of the Dodd-Frank Act, effective next year, will have the effect of forcing public corporations to open kimonos they have long cinched tight–even companies with relatively transparent disclosure practices. They’ll have to abandon the legalistic approach of limiting their exposure of compensation discussions to that required by the SEC in proxy statement disclosures.

That change won’t come easily. Yet, despite the difficulties say on pay will create, many companies will ultimately view it as beneficial. For those who view it as an opportunity to engage in continuous dialogue about reaching corporate goals through responsible practices, it will lead to stronger links between pay and performance. (continue reading… )



1 Response to “How To Make The Best Of ‘Say On Pay’”

  1. 1 Rob Berick November 10, 2010 at 2:35 pm

    This is great perspective, Donald – I found myself nodding my head “yes” with increasing frequency as I read. Say-on-Pay does not have to be a corporate “proctology exam” but, rather, another opportunity for management to demonstrate the clarity of its vision and the success of its strategic execution.

    And, while I would whole-heartedly agree that companies now need skilled communicators running the point on their investor outreach efforts (rather than a simply relying on a member of the finance dept as has been largely the practice in recent history), I would advise against categorically dismissing any communications channel as, for some investor bases, the press release might be the proper vehicle to engage and educate them. It’s my opinion that it’s the content that’s critical, and the channel is secondary (and highly dependent upon what is best for the unique make-up of a company’s shareholder base and target investors).

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