US/UK - The US should adopt the UK's practice of allowing shareholder advisory votes on executive compensation, a new report released today argued.
The report, Say on Pay: Six Years On, said in the UK, executives' compensation has become more closely linked to performance as investors moved to align executives' interests with their own.
But similar steps have not been taken in the US to the same degree yet, Pensions & Investment Research Consultants and Railpen Investments, the authors of the report, argued.
The two groups argued that investors in the US need to take similar steps.
Corporate governance counsel at Railpen and co-author of the report Deborah Gilson said: "As global investors, we are concerned that the rights we have in other parts of the world are not evident in the USA. It is our largest overseas market and as such, we are keen that we have an active dialogue with the companies that we invest in there."
She added: "We see the implementation of say on pay as part of the larger corporate governance reform agenda that is needed in the USA. The UK's experience demonstrates there is nothing for companies to fear from the introduction of a vote on remuneration, and much for them, and their shareholders, to gain."
The report also said there has been greater dialogue between investors and companies in the UK and that there has been a move away from the use of options schemes in favour of long term incentive plans.
But a number of US investors and interest groups have been very vocal about shareholder activism and in particular, supporting say-on-pay.
Yesterday, the Conference Board Task Force on Executive Compensation issued guidelines calling for companies to establish a clear link between performance and compensation and for greater board oversight of executive pay, among other actions.
Supporters of the guidelines include the California State Teachers' Retirement System and the Securities Industry and Financial Markets Association, among others.
"Implementing the compensation principles we recommend is an important step in restoring the damaged trust in American companies," said co-chairs of the Task Force Robert Denham and Rajiv Gupta. "At the same time, we believe compensation committees and boards must be free to develop compensation programs that reflect their shareholders' interests and fit their companies' business objectives."
Say-on-pay has also become a federal issue in the US. In May, senator Charles Schumer introduced the Shareholder Bill of Rights Act of 2009. The bill, among other things, requires public companies to hold annual votes on compensation packages.
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