Lately the news has been full of executive compensation horror stories. Last week, JPMorgan Chase & Company Chairman and CEO Jamie Dimon appeared before the Senate Banking Committee and was questioned about clawbacks from the executives responsible for the company’s $2 billion in trading losses.
In April, shareholders of Citigroup voted no on CEO Vikram Pandit’s $14.8 million package (probably because the stock fell 44.3% in 2011). Last month, shareholders of companies like Chiquita Brands, Pitney Bowes and Community Health Systems all said no. On June 11, the Wall Street Journal reported that say-on-pay failures are on the rise, and more companies are facing a backlash in their say-on-pay votes.
Does this mean that executive compensation in Corporate America is in a state of disrepair?
No. As my Compensation Cafe colleague Dan Walter said on the June 14th episode of The Proactive Employer, it’s another example of an overblown media storm centering on a handful of anomalous cases. An article in Bloomberg Businessweek supports this: as of June 4, only 2 percent of say-on-pay votes were rejected by shareholders.
Data from Semler Brossy shows the same pattern:
So, does this mean that say-on-pay is just a rubber stamp and companies have carte blanche when it comes to executive compensation?
No. According to Daniel Ryterband, the high approval rate masks the behind-the-scenes drama: “say on pay has had a significant impact on the design and magnitude of pay packages.” Randy Ramirez agrees, and points out that “when say-on-pay first came out, a lot of [corporate boards of directors] were defiant… But since then, they have learned that non-binding does not mean without teeth.”
The bottom line: boards of directors across Corporate America are listening to shareholders when it comes to say on pay, even if you’re not hearing about it.