John McCain, the presumptive Republican nominee in the 2008 U.S. Presidential contest, recently announced that he supports giving shareholders of his country’s public companies an advisory vote on executive compensation. That’s two-for-two of the Whitehouse candidates: In April, Democratic Presidential nominee Barack Obama introduced legislation in the U.S. Senate that would mandate an advisory vote on annual corporate proxy ballots. The Bill is currently being considered at committee level.
Meanwhile, without waiting for a legislative requirement, U.S. insurance company Aflac became the first American corporation to include an advisory vote resolution on the ballot. In May, the company’s shareholders endorsed the company’s report on executive compensation by a wide margin.
Aflac was first, but is no longer alone in providing shareholders with a right to express their approval of executive compensation practices, otherwise known as “say on pay.” Blockbuster, Par Pharmaceuticals and Verizon Communications each announced that an advisory vote would appear on their proxy ballots in 2009, after a majority of their equity investors voted for shareholder proposals to adopt the vote. Newly-public RiskMetrics also elected to hold a vote – or rather three votes – on executive compensation at its shareholders meeting on June 4. The questions on the ballot ask for shareholder input on different aspects of the company’s executive pay practices.
Meanwhile, there continued to be strong support to urge U.S. companies to consider adopting “say on pay.” More than 70 shareholder proposals asking for a vote on executive compensation were filed with U.S. public companies at their 2008 annual shareholder meetings. In its “Midseason Review,” RiskMetrics looked at 35 meetings and indicated average shareholder support for these proposals stood at 43.1 percent. Most notably, majority support was reported for votes tallied at Apple Computer, Alaska Air, Lexmark, PG&E, Motorola and South Financial Group.
In Canada, shareholders of the largest five banks had an opportunity to weigh in on the desirability of an advisory vote on executive pay earlier this year. Collectively, they voted 40.5% in favour, – a strong showing for a first-time proposal – signaling significant support for the idea.
U.K. companies have been required to hold an annual vote on executive pay since 2003. In the U.S., the issue now has not only bipartisan support, but experience with conducting the vote thanks to voluntary adopters. A legislated pay vote in the U.S. now appears imminent. For Canadian companies and their shareholders, past experience with governance advances in the U.S. indicates that it is no longer a matter of “if,” but simply “how long” before an advisory vote on executive pay becomes a reality in this market.