Now that we've experienced the first proxy season since the Dodd-Frank say-on-pay compensation provision took effect, what are the lessons?
The lessons are in from the first proxy season that included the Dodd-Frank legislation’s "say on pay" provision. Say on pay, which gives shareholders an advisory vote on executive compensation programs, was a response to the public outcry about oversize executive pay packages following the 2008 financial crisis. Here is what we’ve learned:
Lesson 1. Proxy advisers hold all the cards. Because say-on-pay voting falls largely in the hands of investment funds ill-equipped to analyze thousands of proxy statements, the funds accepted the analyses of proxy-advisory firms, most notably Institutional Shareholder Services and to a lesser extent, Glass-Lewis. Compensation committees largely followed the advisory firms’ recommendations, effectively allowing them to dominate say-on-pay voting. The firms will continue to wield great influence until more investment funds begin to conduct analyses in-house, an innovation I would encourage. So far, few have moved to do this.
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