Plus, strong performance one year hasn't guaranteed a passing vote the next year. "We saw instances in this year's votes where companies that received 90 percent approval last year failed," says Boyd.
Although the votes are nonbinding, companies still want to see to it that they pass with a solid majority. And that is having a big impact on what goes into executive compensation packages. Institutional Shareholder Services and other proxy advisory firms have frowned on excessive perks such as corporate jet usage for executives' friends and family, says Rattner. "We've seen some companies make pretty significant reductions," she says.
Numerous shareholder derivative actions have also followed failed say-on-pay votes. Citing breach of fiduciary duty, plaintiffs have used litigation as yet another platform for expressing dissatisfaction with excessive compensation and other perceived forms of corporate waste.
Rattner anticipates that shareholder scrutiny of executive compensation and heightened sensitivity to problematic practices will continue. The increased transparency of executive compensation will affect general counsel just like any other top executives. But Rattner expects that the effects the new requirements are having on companies will eventually stabilize. Companies are getting used to engaging in deeper risk assessment, she says, and realigning compensation practices after they do.
As companies get more comfortable with say-on-pay, the SEC continues to roll out new regulations governing executive pay. In June the commission approved a rule directing securities exchanges to adopt listing standards for public company boards of directors and compensation advisers. The rule focuses on maintaining the independence of board and compensation committee members.
Rattner predicts a "flurry of activity" when the SEC issues its final regulations on mandatory clawbacks later this year. The provisions will make it mandatory for public companies to go after incentive-based compensation from executives who have engaged in certain practices. Some business leaders have been critical of the discretion that the clawback rule will take from companies.
The unsettled economic landscape makes big-picture predictions about the future of executive compensation difficult. The crystal ball gets even cloudier when you toss in the uncertainty that accompanies a presidential election year. President Barack Obama and presumed Republican candidate Mitt Romney have both vowed to make economic recovery a top priority for their administration. Whoever wins, if there's good news to report here next year, he'll surely take the credit.
This article originally appeared in Corporate Counsel under the headline “Lower Pay is the New Black.”
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