What is Say-on-pay?
Say on pay describes a periodic process required by the law in which the shareholders of a firm can vote on the payment or remuneration of executives and general compensation policies. Say on pay explains the ability of shareholders to actively participate in a process that decides on compensation of executives. This Say on pay role performed by shareholders is backed up by corporate law and it is practiced periodically in most public companies. This can also be regarded as an advisory vote on payment and compensation by key stakeholders of a firm.
How Does Say on Pay Work?
Say on pay provisions were created by corporate law to curb excesses in payments and compensation of highly placed executives of a firm. In an actual sense, managers or executives of a firm are meant to be paid but these officials tend to overpay themselves and this needs to be curbed, hence, the introduction of Say on Pay. Say on pay sets up a board of trustees that has a fiduciary duty to protect the interest of the firm. It allows a firms stakeholders to decide on the appropriate compensation plan for its top executives. Despite the effectiveness of say on pay, there are diverse criticisms levied against its provisions. Say on pay emerged as a result of stakeholders revolt against the amount that company executives were being paid. Before the say to pay legislation was introduced, here are some firms that experienced stakeholders revolt against executives pay and compensation;
- In July 2001, the shareholders of Vodafone company voted against 13m in shares for CEO Sir Chris Gent.
- In April 2005, shareholders also voted against the Former chairman of Unilever, Niall Fitzgerald who got 1.2m after profits fell in 2005.
- 15% of Tesco shareholders also voted against an 11.5m bonus that was added to the salary of the CEO, Sir Terry Leahy in June 2007.
Aside from the above listed companies, there are several other firms where shareholders revolted against the overpay of executives.
