Editor’s Note: Robert Pozen
is a senior lecturer at Harvard Business School and a senior fellow at the Brookings Institution. This post is based on an article by Mr. Pozen and Theresa Hamacher that originally appeared in the Financial Times
While shareholders of public companies in the UK and US have been voting on advisory (non-binding) resolutions about executive compensation, those in the Netherlands, Norway and Sweden have been voting on binding resolutions.
This might change. The UK government has proposed moving from advisory to compulsory resolutions on executive pay and, recently, the Swiss approved a referendum directing its parliament to require public companies to hold binding shareholder resolutions over pay.
Based on the available data, however, we do not support a general requirement for all public companies to hold a binding shareholder vote on executive compensation. But if less than a majority of the shares voted at one annual meeting favour a company’s executive compensation plan, then at the next annual meeting, the shareholder vote on that company’s executive compensation plan should be binding.
Let us begin by reviewing the data on advisory resolutions in the US and UK. In the first half of 2012, only 53 US public companies received less than a majority vote on their executive compensation plan. Of these 53, however, 45 gained majority support for their say on pay resolutions in 2013, according to Institutional Shareholder Services.
…continue reading: The (Advisory) Ties That Bind Executive Pay