Boards who prefer 3-year 'say on pay' votes get pushback

Even if they're not binding on boards of directors, the "say on pay" proposals that many shareholders will see for the first time this spring on proxy ballots promise to enliven the stodgy process of corporate governance.

It's not that shareholders have suddenly gained the power to replace the often-complex pay schemes for the chief executive and other senior managers with straight-time paychecks at $15 an hour.

But the exercise could begin to send some not-so-subtle messages to boards about how they pay corporate leaders and how often shareholders want the chance to vote publicly on those compensation practices.

Equilar Inc., a Redwood City, Calif., compensation research firm, has been studying the proxy statements of 166 companies that had filed them with the Securities and Exchange Commission in December and January. It found that slightly more than half of them had suggested shareholders opt for a "say on pay" vote every three years, while one-third have proposed annual votes.

Early on in this process that is so common in Europe, U.S. shareholders do seem to be asserting themselves a bit. Equilar said of the 23 companies that had held annual meetings before Feb. 1, shareholders wound up supporting a vote frequency different from the board's proposal 35 percent of the time.

That's what happened at Valley Forge-based AmerisourceBergen Corp.'s annual meeting earlier this month when shareholders sided with an annual vote rather than the company's suggestion of three years.

Such outcomes are unusual, because shareholders rarely vote against board recommendations.

And it sets up a tension of sorts between boards and their biggest shareholders. After all, compensation committees have been tying more executive pay to the achievement of financial performance measures over a multi-year period and believe that you can't judge the effectiveness of a long-term incentive plan on the basis of one year.

Nevertheless, shareholders want to make sure companies aren't overpaying for that performance and seem to be reluctant to limit their newfound oversight power to once every two or three years.