A Say-on-Pay Sucker Punch

For shareowners, say-on-pay is shaping up to be a sucker punch.

Shareowners are poised to suffer a significant setback this Spring. We need to strategize to prevent this. We don’t have much time.

Say-on-pay should be an opportunity for shareowners to come together and emphatically repudiate sky-high executive compensation. If we believe the vast majority of executives are excessively compensated, then we should vote to reject compensation packages at the vast majority of corporations. The way things are going, that is unlikely to happen this proxy season. We need to make it happen.

You may be thinking that widespread shareowner repudiation of compensation packages would trivialize say-on-pay, squandering its opportunity. That is exactly how executive sycophants want you to think. Don’t drink the CoolAid.

There are actually two issues here.

  1. As shareowners, we own the corporations, and we are disgusted with executive compensation. If our property rights meant anything, we could force pay cuts. Instead, Messers Dodd and Frank gave us an advisory vote only. Say-on-pay isn’t an opportunity. It is an insult, one in a long line of insults that have recently included the SEC’s rediculous ballot (non)access rules and the Supreme Court’s decision in Citizens United. Let’s show say-on-pay to be the mockery that it is, throw it back in Congress’ faces, and say “we want our real rights back.” The only true value in say-on-pay is as a publicity tool. That’s how we need to use it.
  2. If we fail to vote against compensation packages we perceive as excessive, then say-on-pay will be worse than useless. It will actually harm our cause. In the future, when fat cat executives pay themselves $10 million, $20 million or $50 million, shareowners won’t have room to complain. The fat cats will retort: you all voted to approve our pay package. If we are to avoid injuring ourselves, we must stand on principle and vote against the vast majority of executive compensation packages. Stated another way, say-on-pay is a sucker punch we need to dodge.

As things are going, that isn’t going to happen. Shareowners have not coordinated a uniform approach to voting on compensation packages. To the extent that there has been a debate on say-on-pay recently, it has been over the issue of whether such votes should be held annually, bi-annually or once every three years. Corporate lackeys are delighted to keep any debate focused on that non-issue.

The few efforts that have been made to propose voting standards for say-on-pay have tended to focus on qualitative as opposed to quantitative issues. What is the role and composition of the compensation committee? What are the relative strengths and weaknesses of various forms of compensation in relation to the company’s business objectives? How should performance be measured? They are silent on the delicate issue of how much compensation is too much.

Let’s be blunt. If an executive walks away with $10 million in a year, it doesn’t matter how the package was structured or how the actual level of compensation was arrived at. At $10 million in a single year, the executive is grossly overcompensated.

But there has been no discussion among shareowners about where to draw the line or how to draw the line. In dollar terms, how much compensation is too much? And because compensation packages aren’t expressed in dollars, but in stock options, and equity grants, and bonus potentials, how should we identigy packages that are unacceptable?

If we don’t start making waves—large waves—soon, proxy advisory services are going to take the path of least resistance and recommend “yes” votes for the majority of say-on-pay ballot questions. Institutional investors will follow that lead and vote for those pay packages. We’ll take the sucker punch.

To prevent this from happening, we need to do two things. First, we need to develop a clear standard for identifying compensation packages as excessive. Once we have settled on a standard, we must advertise it to shareowners and proxy advisers.

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