Say on pay suddenly vogue
Say on pay is being adopted around the country after being shunned for five years. You might recall that even the Canadian Coalition on Good Governance rejected this idea a couple of years ago.
No mistaking what is behind the sudden change of heart. Think AIG. And the strategy is that a voluntary, non-binding ‘vote’ on compensation is a useful way to forestall mandatory, binding laws on compensation, or, heaven forbid, taxation of same.
A welcome change nonetheless and an opportunity to challenge management’s idea of what it is worth. Also, for the theorists, a shining example of the (re)flexible new governance school. The problem being that there is no functioning market for executives, that is, it does not robustly respond to price or performance, and this may, it is said, be the result of an agency cost associated with the separation of ownership and control, in the classic phrasing.
By offering a voluntary, non binding shareholder say on pay, will we foster a functioning market in senior management pay or even cap executive compensation? The odds are against it, but tendata via.