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Reform Legislation Poses New Challenges for Executive Compensation

Source: Towers Watson

Posted on 14 Jul 2010

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The sweeping financial services reform law ushers in a say-on-pay era that holds important implications for executive compensation governance in major U.S. companies.

Say on pay — a nonbinding shareholder vote on executive compensation — was first required by law for U.S. financial institutions receiving bailout funds under the Troubled Asset Relief Program (TARP), enacted in 2008. This limited U.S. experience offers some insight into what companies might expect from investors and their advisors. For example, despite the intense public scrutiny and frequent media criticism of executive pay packages, most U.S. shareholders granted an opportunity to cast votes on executive pay programs have been supportive of company practices.

That said, companies that expect to continue with business as usual may be in for a rude awakening. After all, shareholders and their advisors have aggressively pursued the right to say on pay for years, and no doubt the majority will take this exercise very seriously. 

A new Towers Watson survey suggests that relatively few companies are fully prepared to operate in a say-on-pay environment. For more information, read our press release on this topic. However, there are things companies can do to begin laying the groundwork for say on pay even before the new legislation and any implementing regulations are in place. These articles: