Shareholders have the unique right to elect the board of directors. Over time, shareholder voices have gotten stronger as the range of proposals up for shareholder approval has expanded. Primarily, companies will hold meetings directly with institutional investors through a deliberate engagement effort.
Institutional investor engagement provides companies with the opportunity to learn about the investors' perspective on executive compensation and related governance issues. This process was accelerated by the introduction of the 2011 mandatory non-binding say on pay votes in the U.S.
Investors differ greatly in their approaches to the evaluation of executive compensation and voting on say on pay, and it is a best practice for companies to meet with their investors regularly.
A best practice is for companies to focus on their own pay for performance story and provide the investors with clear rationales for the pay decisions made by the compensation committee. Companies must carefully consider which members of management should be part of the engagement team and whether circumstances warrant the participation of a company director.
Shareholders may also request that company management include resolutions (also known as "shareholder proposals") to be voted on at the company’s next annual meeting. These proposals may address company policies and procedures, corporate governance, executive compensation, or other issues such as environmental stewardship or corporate social responsibility. These resolutions can have a significant impact, including pressure on the board and management to deviate from the highly-customized business strategies, potential shareholder rebellion or adverse media attention.
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