In 2002, the UK began requiring an advisory shareholder vote on the annual executive and non-executive director compensation practices of UK-incorporated quoted companies (“UK Companies”). Eight years later, in July 2010, the US followed suit when President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), providing for an advisory say-on-pay vote for most large US public companies.
The UK government has now gone one step further by proposing to reform the approval process for director remuneration, including through the introduction of a binding shareholder vote for all UK Companies that must occur not less frequently than every three years. The new UK proposal does not stem from guidelines or mandates adopted by any European or other supra-national body. Rather, the proposal was the initiative of the UK government made at the national level in consultation with companies, shareholders, institutional investors and other interested parties. The UK approach, if ultimately implemented as expected, could be a powerful example for US investors seeking to drive change in executive compensation practices.
We discuss below the current state of say-on-pay in the US and the UK reforms.