Say-on-pay is yesterday’s news

IT doesn’t take a genius to figure out that U.S. boards of directors and corporate executives are in for a rough time this coming proxy season.No one can be sure how the story in the stock market is going to play out, but with a month to go to year-end it looks increasingly like most U.S. stock investors will have a bad year.

And in light of that, it’s probably safe to say that shareholders are going to be paying more attention than usual to the information companies will be putting out in advance of their annual meetings.

Of course, executive pay figures almost always look worse to shareholders after a down year. Risk Metrics, which advises institutional investors on how to vote at annual meetings, predicts that pay issues will “continue to be the major focus for investors” during the U.S. 2008 proxy season.

Many more companies will likely face “say-on-pay” proposals that seek to give shareholders an advisory vote on executive pay packages.

Say-on-pay is new in the U.S. The first actual advisory vote will be held in May at Aflac, which agreed to do so after talking with its biggest shareholders.

About 60 say-on-pay proposals were put to a vote this year and averaged 42% support from shareholders. Pay vote proposals won majority support at seven companies, including Verizon, Motorola, Blockbuster, Ingersoll-Rand, Clear Channel Communications, Par Pharmaceutical, and Activision.

Verizon’s board has agreed to hold a say on pay vote starting in 2009, but the other companies haven’t disclosed their plans.

A couple of weeks ago, a say-on-pay vote at Cisco Systems, Inc. won 48% support from shareholders — and that was after a good year for the company’s investors!

So I think it’s safe to say that say-on-pay is already yesterday’s news, even though most companies and their boards don’t know it. Like majority vote policies for director elections, which are now in place at two-thirds of the S&P 500, there’s no point in boards fighting say-on-pay or making it a big issue. It’s not even a binding vote, so who cares?

Much better to adopt a say-on-pay policy and move on. Spend the time and energy focusing on more important things, like engaging skittish shareholders and reminding them of why they should continue to be owners.

Give them a sense of what tomorrow’s news might be for your company.

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