M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Monday, June 25, 2012

UK seeks binding say-on-pay rules

Apologies for the light blogging.  With summer and travel schedules, it's been slipping.  Back now.  So expect me more often.

That said, perhaps a "Shareholder Spring" for the UK?  It looks like the UK is going to take say-on-pay one step further and is now seeking binding shareholder votes.  Vince Cable, the UK's business secretary announced the move last week ago because the government believed that the non-binding votes weren't working.  By working, he meant that where shareholders voted "no", there was an expectation that boards would respond by reevaluating pay practices and adjusting downward.  In fact, that didn't happen and pay went up. Part of that might be traced to board recalcitrance, but I suspect a larger part can be traced to the fact that in the say-on-pay environment there are many more datapoints with respect to what peers are paid that it the rachet effect sends pay up as even responsible boards strive to pay in the top half of the range of selected peers.  From the Guide to Directors Pay:


Experience with the say-on-pay votes in the US has been pretty uniform -- shareholders vote them down.  Prof John Coates believes that the fact in the first year or two of implementation that such votes aloready get about 30% opposition is a sign that over time shareholders will turn to negative pay votes as a way to signal discontent to boards.  The UK experience suggests that even negative non-binding votes might not be enough for shareholders to really affect and influence board policy.  Perhaps binding votes are in our future as well?  In that case, best to pay attention to what is happening in the UK now.



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