America is experiencing an extraordinary period of legislative and regulatory executive compensation reform. In fact, executive compensation reform is so much in vogue that many companies are even voluntarily introducing so-called Say on Pay resolutions.
Since Treasury Secretary Geithner first proclaimed that companies in receipt of TARP assistance would have to subject executive compensation to Say on Pay resolutions in February 2009, thirteen publicly-traded companies that did not receive TARP monies-including Verizon, Motorola, and Blockbuster-have willingly adopted the Say on Pay way.
In addition to these thirteen corporate compensation pioneers, eleven other leading publicly-traded companies that did not receive TARP funds-such as Microsoft and Apple-have either willingly scheduled Say on Pay votes for 2010 or have already voted but not yet released results.
These voluntary say on pay resolutions revise compensation disclosure by, among other things, changing the Summary Compensation Table ("SCT") reporting of stock and option awards and by broadening the scope of the Compensation Discussion and Analysis ("CD&A") to include a new section that analyzes the link between a company's overall compensation policies and the company's risk and management of that risk.
Say on Pay resolutions further require that compensation committees be independent, and that such committees disclose the use of consultants and advisors (who are also required to be independent). In addition, such provisions require disclosure of specific performance targets, and also seek to enhance proxy access for stockholder proposals and director nominations.
Adoption of Say on Pay provisions will result in closer scrutiny of executive pay arrangements by boards and compensation committees. Better-informed and qualified boards and compensation committees, in turn, may help restore investors' faith in corporate governance after the crises of the last two years.