February 22, 2007
Aflac Gives Shareholders a Say on Pay
Posted by Lisa Fairfax

Aflac Inc has become the first US company to agree to give its shareholders the right to a non-binding vote on executive compensation packages.  This "say on pay" policy will become effective in 2009, and was instituted after discussion with shareholders who had submitted a proposal requesting such a policy.  Already this year, shareholders have submitted similar advisory "say on pay" policies at some 60 companies.  The hope is that other companies will follow Aflac's lead and voluntarily adopt such a policy. 

Clearly the "say on pay" is not about disclosure, but rather about ensuring some meaningful dialogue between management and shareholders.  While I am not sure if the dialogue itself will lead to "optimal" compensation packages, it does seem like it has the potential to change the way in which compensation decisions are made.  The UK has required these kind of advisory votes since 2002 and shareholder activists claim that such votes, and the dialogue that accompanies them, have encouraged companies to tie pay to performance.  This at least suggests that having some shareholder input into the compensation process could compel corporations to create compensation packages that do a better job of linking pay to specific performance goals.  But I must say that given the seeming inability of other mechanisms to curb the tremendous growth in executive compensation, I am taking the "time will tell" position on this most recent effort.

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