Ten Myths of 'Say on Pay'

Download or read book Ten Myths of 'Say on Pay' written by David F. Larcker and published by . This book was released on 2014 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: Say on pay is the practice of granting shareholders the right to vote on a company's executive compensation program at the annual shareholder meeting. Under the Dodd-Frank Act of 2010, publicly traded companies in the U.S. are required to adopt say on pay. Advocates of this approach believe that say on pay will increase the accountability of corporate directors and lead to improved compensation practices.In recent years, several myths have come to be accepted by the media and governance experts. These myths include the beliefs that:1. There is only one approach to “say on pay."2. All shareholders want the right to vote on executive compensation.3. Say on pay reduces executive compensation levels.4. Pay plans are a failure if they do not receive high shareholder support. 5. Say on pay improves “pay for performance."6. Plain-vanilla equity awards are not performance-based.7. Discretionary bonuses should not be allowed.8. Shareholders should reject nonstandard benefits.9. Boards should adjust pay plans to satisfy dissatisfied shareholders.10. Proxy advisory firm recommendations for say on pay are correct.We examine each of these myths in the context of the research evidence and explain why they are incorrect. We ask: Should the U.S. rescind the requirement for mandatory say on pay and return to a voluntary regime?Topics, Issues and Controversies in Corporate Governance and Leadership: The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the book Corporate Governance Matters, and A Real Look at Real World Corporate Governance.