The Say-on-Pay Movement – Evidence From a Comparative Perspective

Abstract

The level of shareholder participation in the determination of executive compensation has emerged, in recent years, as one of the most intensively debated fields in the area of modern corporate governance. A say-on-pay regime was implemented, for the first time, in the UK in 2002, but a decisive tipping point may well have been reached in July 2010 when the US Congress adopted a new set of rules under which all US listed companies are required, starting in the 2011 proxy season, to put a vote with respect to executive compensation on the agenda of their annual meetings. The recent financial crisis also prompted the enactment of a say-on-pay vote requirement in Germany. By contrast, in Switzerland, the principle of such a shareholder vote is still being debated among experts and laymen alike. In all likelihood, Swiss voters will be consulted in 2012 or 2013 on whether or not a say-on-pay regime, whose terms are rather stringent in international comparison, should be carved into the Swiss Constitution. After a review of the rules implemented or discussed in the four jurisdictions mentioned above, the authors will argue that say-on-pay votes are, by and large, a convincing concept to enhance the corporate governance of the large public firm. It is crucial however that the modalities of such a shareholder vote be tailored to the different corporate governance structures prevailing in various jurisdictions. Finally, the authors comment on, and recommend a series of improvements with respect to, the say-on-pay provisions that have been implemented or discussed in the four jurisdictions which are addressed in this contribution.