Say on Pay

Say on pay was introduced to increase accountability for executive pay, which has often been criticised as too high or poorly linked to performance.

The rules differ between countries. In the United Kingdom, shareholders of listed companies have an annual advisory vote on the remuneration report and a binding vote on the remuneration policy at least every three years. In the United States, the Dodd-Frank Act of 2010 introduced advisory say-on-pay votes for public companies. Many European countries have similar rules under European Union law.

For example, if a large share of shareholders vote against a company’s pay report, the board is expected to engage with investors and explain how it will respond, even if the vote is only advisory.

Although advisory votes are not binding, significant opposition can embarrass boards, lead to changes in pay arrangements and influence the re-election of remuneration committee members. Proxy advisory firms, which advise institutional investors on how to vote, play an important role in say-on-pay votes.