Views on improving the integrity of global capital markets
04 November 2013

Corp Gov Roundup: “Say-on-Pay” Proposal, Audit Rotation Rules, Proxy Season


From a say-on-pay proposal in France and audit rotation rules in the U.K. to proxy season highlights in the U.S., it’s time to span the corporate governance globe to review important developments from the month of October.


There is currently no say-on-pay standard in France, but the 2013 proxy season may have changed investor sentiment toward supporting the vote.

The advertising company Publicis submitted a voluntary say-on pay proposal at its general meeting this year. Shareholders were asked to provide their non-binding vote on the principles and elements of the compensation of the chairmen of the supervisory and management boards. Shareholders voiced concern about disclosure and changes in the remuneration structure and the short-term aspect of the remuneration policy. The CEO’s say-on-pay proposal received only a 79 percent approval rate, much lower than the proposal concerning the supervisory board’s chair (99 percent).

The CEO’s pay became an issue during the 2012 French presidential elections, during  which the eventual winner, Francois Hollande, campaigned against excessive pay.


Things are heating up following the launch of Japanese corporate governance reforms in June. An expert group in Japan has been tasked with drawing up a stewardship code, similar to the U.K. code. During a recent meeting in October to discuss the stewardship code, the Life Insurance Association of Japan and the Pension Fund Association expressed concerns over “free rider” problems and the lack of clear evidence on the cost-effectiveness of active stewardship.

At a prior meeting, experts criticized Japanese investors who claim they already largely comply with U.K. Stewardship Code principles.


In Spain, the committee of experts on corporate governance put forth a number of proposals to amend the Corporate Enterprises Act and the Commercial Code. These proposed reforms include a binding say-on-pay vote for shareholders, mandatory appointment of a lead independent director where the chairman/CEO position is combined, and mandatory audit, nomination, and remuneration committees, chaired by independent directors.

The binding shareholder vote on director remuneration under consideration would be held once every three years, and any changes would require the approval of shareowners. If the remuneration report is rejected by shareowners, a company can submit a remuneration policy again without having to wait for three years to pass one.

The committee is also charged with increasing transparency in director appointments, proposing that “all information” — including education, experience, and candidate merits— be made available to shareholders.


On 24 November the Swiss people will vote on a new initiative that would limit executive pay to 12 times that of a company’s lowest-paid employee. According to Swiss pension fund association Ethos, the initiative would take away power from shareowners and boards. This follows on the heels of the “Minder initiative” that was passed in March and requires binding shareowner votes on executive and director pay.

United Kingdom

Britain’s Competition Commission recently released final audit rotation rules governing audit services for U.K. companies. It will require large U.K. companies to put their audit up for bid every 10 years instead of every five years, as mandated by the original proposal. Pushback from audit firms and companies extended the rotation out to once every 10 years.

According to the new rules, an Audit Quality Review (AQR) team will review every audit engagement in the FTSE 350 companies on average every five years, with audit committees reporting to shareholders on the findings. Shareowners will also vote at the annual meeting on whether audit committee reports in company annual reports are satisfactory.

United States

Autumn in the U.S. is always a good time to catch up with what happened during the past proxy season. A few highlights include:

  • Shareholder support for executive pay picked up, but 50-plus companies still failed to pass say-on-pay votes.
  • Shareholder proposals on political spending and lobbying unexpectedly increased in a non-election year.
  • Fewer directors failed to gain majority support this year, but directors are still rarely kicked off the board when they fail to reach this “majority voting” threshold.
  • Proposals for shareholder access to the proxy — nominating directors — gained support but was only proposed at a handful of companies (11 as of this writing).
  • Classified boards — directors only elected every three years — at large companies are disappearing.
  • Engagement between companies and shareowners is increasing — and that is a good thing.

Now you could just read those bullet points and move on, but wouldn’t you feel better if you read comprehensive reports on proxy season prepared by the hard working people at ISS and Georgeson? I thought so.

As revised 13 November 2013.

Photo credit: iStockphoto/YinYang

About the Author(s)
Matt Orsagh, CFA, CIPM

Matt Orsagh, CFA, CIPM, is a director of capital markets policy at CFA Institute, where he focuses on corporate governance issues. He was named one of the 2008 “Rising Stars of Corporate Governance” by the Millstein Center for Corporate Governance and Performance at the Yale School of Management.

2 thoughts on “Corp Gov Roundup: “Say-on-Pay” Proposal, Audit Rotation Rules, Proxy Season”

  1. Eric says:

    The UK rule is that FTSE 350 companies should tender their audits every 10 years.

  2. Matt Orsagh, CFA, CIPM says:

    Thanks for your comment. The post has been revised to reflect the correct audit rotation interval.

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