Say On Pay Frequency

The Dodd-Frank Act requires publicly traded companies to hold a non-binding vote on executive compensation (“say on pay”) every one, two or three years, and requires the companies to hold a vote on the frequency of say on pay votes at least every six years.  HR Policy Association in conjunction with the Center On Executive Compensation believe a company’s board of directors is in the best position to choose how often to hold say on pay votes consistent with factors, such as the company’s industry, business model and compensation philosophy.  However, following the first year of such “frequency votes,” most shareholders expressed their preference of holding say on pay votes annually.  The Center believes that say on pay can help facilitate communication between companies and their shareholders; however, an annual vote reinforces a short-term focus, which is inconsistent with executive compensation plans - the majority of which is earned over three years.  An annual vote also does not provide sufficient time for investors to carefully evaluate the structure of company plans and the performance under those plans.  The Center believes that, for many, if not most, companies holding a say on pay vote every three years will allow shareholders to more carefully evaluate whether executive compensation was linked to company performance and whether the compensation committee’s intent in granting compensation, as it is disclosed in the proxy, is aligned with shareholder interests.