While executive compensation and allegations of excessive executive compensation have long been a "hot topic" in the U.S., a shareholder vote on executive pay, commonly known as "say-on-pay," was not broadly required for U.S. public companies until the adoption of the Dodd-Frank Wall Street Reform and Consumer Protection Act 2010 (Dodd-Frank Act) in July 2010. Now, with the passing of the Dodd-Frank Act, all U.S. public companies are required to include a shareholder advisory vote on executive compensation. In the UK, the right for shareholders in quoted companies to hold an advisory vote on executive pay is already well established. The right was introduced by the Directors Remuneration Report Regulations 2002 (SI 2002/1986) (now replaced by the Large and Medium-sized Companies and Groups (Accounts and Report) Regulations 2008 (SI 2008/373)) (Regulations) for financial years ending on or after 31 December 2002. The question corporate boardrooms and shareholders alike are asking is: will mandatory say-on-pay votes affect U.S. executive compensation practices? Because this is the first year of mandatory say-on-pay votes in the U.S., it is difficult to predict precisely how executive compensation will be affected in the long-term. In the short period of time since implementation, two noticeable trends have developed: 1) companies are more open to a dialogue with shareholders to justify compensation decisions and practices; and, 2) companies facing significant "no" votes are more willing to change future pay practices (and in some instances even prior awards) in order to ensure that shareholders vote in favor of the company’s executive compensation. This article examines these trends against the background of the impact the Regulations have had on executive compensation in the UK.
Say-on-Pay in the U.S
Mandatory Say-on-Pay: The Dodd-Frank Act
Say-On-Pay in the UK
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