March 25, 2009
Say on pay: who says?
Posted by Usha Rodrigues

I've been appointed the reporter of the ABA Business Bankruptcy's Special Task Force on the impact of TARP on Corporate Governance.  I'm excited to be forced deep into the weeds of ongoing rules and regulations. 

There's one particular weed that's been bothering me: "say on pay." ARRA has a "say on pay" provision requiring companies to let shareholders vote to approve executive compensation.  My question is: does it require a "say on pay" vote for private companies? On its face it seems like it does.  The provision applies to TARP recipients generally, and mentions consents as well as proxies, so I presume that privately held TARP recipients are on the hook. 

I always thought of "say on pay" as a public company phenomenon, giving dispersed shareholders a right to tell the boss he's making too much.  Lisa blogged about it last year here. It's counter-intuitive and overly intrusive, in my mind, to impose it in a private context, where presumably shareholders have more voice in governance issues, and possibly even seats on the board.  Does it feel odd to anyone else?

Then again, maybe "say on pay" is no big deal, in the public or private context.  The Act specifically states that it's nonbinding and creates no additional fiduciary duties for the board, so it could just be another meaningless hoop for companies to jump through.  Still, it's got public companies scrambling.  As Dave blogged, the SEC released guidancesaying, among other things, that say-on-pay applies NOW (that it applies to preliminary or definitive proxy statements filed with the SEC after February 17, 2009). More work for lawyers can't be a bad thing these days, right? 


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