Views on improving the integrity of global capital markets
26 December 2013

“Say on Pay”: How Voting on Executive Pay Is Evolving Globally — and Is It Working?

“Say on pay” is here to stay. The number of markets that give shareowners some say on executive pay is expanding.

In some markets, shareowners have had a voice and a vote on executive compensation matters for over a decade, while some shareowners are only now gaining the broad up or down vote on executive compensation. The manner of executive compensation votes may vary from market to market — some are merely advisory, and some are binding — but the consequences for companies and their boards are the same. No one wants to receive a failed vote on pay. A negative say-on-pay vote has the potential to adversely brand a company and its board in the minds of investors and the public at large. Because a relatively small number of companies receive a failed pay vote in a given market each year, a negative vote on pay embarrasses a board and sends the message to the markets and society that the company just doesn’t get it — or worse, just doesn’t care that executive pay is perceived to be disconnected from performance.

The increased emphasis on say on pay begs this question, however: Is say on pay effective? One recent academic paper seems to say … “yes.”

In the June 2013 paper, Say on Pay Laws, Executive Compensation, CEO Pay Slice, and Firm Value around the World, Ricardo Correa and Ugur Lel examine the effects of say-on-pay laws on CEO compensation, the portion of top management pay captured by CEOs, and firm valuation. A large cross-country sample of about 103,000 firm-year observations from 39 countries are used to document that say-on pay-laws are usually associated with the following:

  • A lower level of CEO compensation, which partly results from lower CEO compensation growth rates and is related to CEO power
  • A higher pay-for-performance sensitivity suggesting that say-on-pay laws have the greatest effects on firms with poor performance
  • A lower portion of total top management pay awarded to CEOs, indicating lower pay inequality among top managers
  • A higher firm value, which is related to whether the CEO’s share of total top management pay was relatively high before the laws were passed.

The study also finds that while both mandatory and advisory say-on-pay laws are associated with lower CEO pay levels, only advisory say-on-pay laws tighten the sensitivity of executive pay to firm performance. The paper documents changes in executive compensation policies and firm valuation following the passage of say-on-pay laws around the world.

Granted, this is only one academic paper, and only a discussion paper meant to foster dialogue on the topic. We will be interested to see whether these initial research findings hold for a longer period of time. Will markets with say-on-pay policies see the same results 10 years from now? Who knows. In the meantime, it is instructive to take a look at the markets that have adopted some kind of say on pay, and attempt to see what works and why. Overall, it seems that say-on-pay votes have spurred engagement between investors and issuers — and that’s a good thing — though the rules don’t always work as regulators intended (Australia), and in other cases, a voluntary approach seems to be working quite well (Canada).


Since 2005, shareowners have had a non-binding vote on executive compensation at Australian-listed companies. However, in 2011, Australian shareowners received a rather potent weapon in their say-on-pay votes: the “two-strikes” rule.

Under the rule, if 25% of shareholders vote against a company’s remuneration report at two consecutive annual general meetings, the entire board may have to stand for re-election within three months. Key management personnel, and parties related to them, are not permitted to vote in the original vote on executive pay but may vote concerning board elections. Therefore, it is possible that shareowners may “spill” a board with a second-strike vote only to have that board reappointed by insiders.

There is some evidence that the rule is having its intended effect, as illustrated in a recent paper, Australia’s ‘Two Strikes’ Rule and the Pay-Performance Link: Are Shareholders Judicious? The paper points to better links between pay and performance the year after a company earns its first strike. However, it remains to be seen whether the two-strikes rule is effective in the long run. There appear to be legitimate complaints among critics of the rule that investors may be using the two- strikes rule for reasons other than poor pay for performance links.

Also, the design of the rule may need some tweaking, based on the following:

  • Directors are entitled to vote at the spill meetings, so that companies managed by boards with large shareholdings are relatively immune to a spill resolution.
  • The votes are almost always dominated by institutional investors (whether this is a good or bad thing is a matter of opinion); that’s because retail and small-scale investors are often ignorant of the process of the spill resolutions and often abstain.

Expect some modifications to the two-strikes rule in future years when we begin to see trends that will help determine whether the rule is working as intended.


Starting in 2012, Belgian companies were required to hold yearly, non-binding say-on-pay votes. The law also sets out best practices on matters such as severance pay and variable pay. If a company chooses to deviate from best practices, they must put forward the policy they recommend to a binding shareowner vote.


In Canada, a large number of companies have taken to voluntary say-on-pay voting without legislation forcing their hand. As of this writing, over 120 companies voluntarily have adopted an advisory say- on-pay vote. In 2010, the Canadian Coalition for Good Governance (CCGG) published a model say-on-pay policy suggesting that boards add an annual vote on pay to the company’s annual general meeting agenda. The Ontario Securities Commission has said mandatory say-on-pay voting is not in its immediate plans and will require further review.

Earlier in 2013, Canada got its first taste of a high profile failed say-on-pay vote at Barrick Gold, when a number of Canada’s largest pension funds led a revolt over the US$ 11.9 million signing bonus the Toronto-based company awarded former Wall Street investment banker John Thornton to join the company’s board as co-chairman. It didn’t help that the company’s stock price had plunged over 50% in the year leading up to the appointment. A staggering 85% of shareowners voiced their displeasure by voting against Barrick’s compensation plan in 2013.


The latest revised edition of the French Corporate Governance Code for Listed Companies was completed in 2013, and includes recommendations regarding the conditions of executive compensation. The code was put forth by France’s principal business confederations, the Association of French Private-Sector Companies and the French Business Confederation.

Companies that comply with the voluntary new code will hold an annual non-binding say-on-pay vote. Companies are asked to explain any non-compliance with the code and publish the explanation in their annual reports.

If the majority of shareholders votes against an executive pay package, the board will be required to consult with its remuneration committee and publicly share its solution.


Germany has allowed advisory say-on-pay votes since 2009. Shareowners enjoy non-binding votes on compensation policy and pay amounts for executives. And most large German companies have given shareowners the ability to vote on pay.

Just before the German national elections this year, the upper house of Germany’s parliament voted against a proposed law that would have required a binding annual shareholder vote on pay, starting in 2014. The proposed law was supported by German Chancellor Angela Merkel, but was opposed by business groups as well as the Social Democratic Party, who believed that the measures did not go far enough to control executive pay.


Since 2011, shareowners of banks and Insurance companies have enjoyed a binding say-on-pay vote. Staring one year later in 2012, all companies were required to seek shareowner approval on their remuneration report, although the vote would only be binding for banks and insurance companies.


Shareowners in the Netherlands have had a binding vote on executive pay for nearly a decade, with the first votes commencing in 2004. The vote applies exclusively to new executive pay plans or pay plans with significant changes.


Before Swiss voters rejected a proposal to cap executive pay in November, the regulation of executive pay had the potential to go farther in Switzerland than in any other country. The proposal voted down by Swiss voters would have capped executive pay at 12 times the pay of the company’s lowest paid worker.

This follows a public referendum in March in which over two-thirds of Swiss voters approved limits to executive pay. The Swiss referendum will introduce strict curbs on pay following a vote supported by 68% of Swiss citizens. The new rules include giving shareholders a binding say on executive pay, banning golden parachutes and signing bonuses, requiring annual re-elections for directors, and threatening criminal sanctions for non-compliance. The law will also increase voting transparency, making pension fund votes on executive pay routine and the results public.

United Kingdom

Shareowners in the UK have had an advisory vote on pay since 2002, but in 2012 the British government gave shareholders a binding vote on executive compensation so that companies could not make payments without shareholder approval. Under the binding vote on future remuneration policy, if a company fails the vote it must revert to the last approved pay policy and cannot implement any proposed compensation changes.

One of the hopes of regulators is that through a process of engagement between investors and companies, compensation policies will emphasize more long-term compensation that better aligns the interests of investors and management. Recently, the GC100 (general counsels at the 100 largest UK firms) and a group of institutional investors have come up with guidance for both boards and investors for engagement around executive pay. It is worth a read for those interested in a more amicable solution to executive pay than confrontation.

United States

The U.S. say-on-pay law was implemented as part of the Dodd-Frank Act in 2011. Say-on-pay votes are non-binding. Shareholders can choose to hold the mandatory vote every one, two, or three years.

Some of the highlights from say on pay in the U.S .this year, according to ISS:

  • Investors endorsed most pay plans, as average shareowner support was 91.4%at Russell 3000 companies, up from 90.7% in 2012.
  • Fifty-two say on pay votes failed through 30 June 30 2013, including three failing for the second year in a row.
  • Only 7.6% of companies received less than 70% support in say-on-pay votes.
  • For companies with a failed vote in 2012, they saw shareowner support jump an average of 40.3 % in 2013. All but five with failed 2012 votes saw a jump in support. This seems to be due to increased engagement.

However, say on pay is not the last word in the regulation of pay disclosure in the United States.

On 18 September, the SEC voted by a 3–2 margin to propose rules for pay disclosure ratios at companies that list with the SEC. In a nod to complaints by business groups that such a rule would be too costly, the SEC proposed that businesses could use sampling and estimation methods to determine the median pay of workers. The plan as proposed does not allow companies to exclude part-time workers or employees based in foreign countries from the calculation.

The proposal would require companies to disclose their CEOs’ total compensation as a multiple of median total worker pay. Total compensation would have to include salary, bonus, stock-and-option awards, long-term incentive pay, and change in pension value.

As noted in a previous blog post, CFA institute members are ambivalent as to whether a pay ratio is indeed useful or simply politically motivated. As with pay rules in most of the markets covered here, we expect the rule to be contentious in some circles, but to foster more engagement around compensation. Although that engagement may be done begrudgingly, it is at least occurring.

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

Matt Orsagh, CFA, CIPM, is a senior director of capital markets policy at CFA Institute, where he focuses on corporate governance, ESG, and climate change analysis. He writes and speaks frequently on these topics on behalf of CFA Institute. His paper, Climate Change Analysis in the Investment Process was named “Best ESG Paper” by Savvy Investor in 2021.

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