Executive compensation in the US is the highest in the world in both absolute terms and relative to median salary in the US (who can forget the widely publicized news report that J.C. Penney CEO Ron Johnson received a compensation package worth 1,795 times the average salary of a US department store worker?). Other countries, however, are not nearly as tolerant as the US, and a recent trend has developed whereby nations are getting creative in developing their own versions of say-on-pay (SOP), and incorporating aspects such as binding shareholder votes and the “two-strike” rule (covered in detail in other posts to this blog).
Countries that have adopted non-binding SOP legislation, allowing shareholders to cast an advisory vote on whether they approve of the executive compensation packages offered to company executives, include the US, Germany, Belgium, Spain and Italy. Notably, while Canada has not adopted SOP legislation, to date, over 120 Canadian companies have voluntarily adopted SOP practices. Similarly, while France has not adopted SOP legislation, in May 2013, an advertising company, Publicis, held the country’s first voluntary SOP vote, and more France-listed companies are likely to follow suit.
Another adaption of SOP legislation that is emerging is the binding SOP vote, with the UK being the most prominent and recent example. Other countries that have adopted legislation containing some form of binding SOP include Japan, Netherlands, Sweden, Denmark, Norway and Finland. In Italy, shareholders of banks and insurers have a binding vote on compensation for all staff involved in areas of material risk-taking. In March 2013, voters in Switzerland overwhelmingly backed the “rip-off” initiative to give shareholders of Swiss-listed companies a binding SOP vote and the country is now tasked with drafting that legislation. Also, later this month, Switzerland’s controversial “1:12” initiative (which aims to restrict executive remuneration to 12x the lowest paid employee) is set for an electoral vote. If adopted, the 1:12 initiative could lead to other creative ways in which countries attempt to curb excessive executive compensation. Stay tuned.
For a more detailed discussion on the content included in this blog, view the recording of the presentation hosted by Squire Sanders in partnership with the DC-VA-MD Chapter of the National Association of Stock Plan Professionals (NASPP), on October 17, 2013.