US “say‐on‐pay” legislation: Is it corporate governance overreach?

Abstract

Purpose

The purpose of this paper is to discuss the issues surrounding “say‐on‐pay” legislation in the USA; evaluate the corporate governance alternatives to “say‐on‐pay” legislation; recommend a policy encouraging enhanced executive accountability; and suggest research questions pertaining to “say‐on‐pay” proposals and executive compensation for scholars to pursue.

Design/methodology/approach

The paper takes an exploratory approach to discussing and analyzing the issues surrounding “say‐on‐pay” legislation in the USA and offering an alternative corporate governance approach to enhancing executive performance.

Findings

The paper finds that whether an annual non‐binding “say‐on‐pay” policy is instituted or not within a company is not the crux of the executive compensation issue. What is important is whether concerned shareholders have the ability to have proxy access and successfully pass such a resolution, thereby exercising shareholder pressure on the board of directors to implement a corporate policy of equating appropriate executive compensation with managerial performance. Moreover, this improvement in board‐shareowner engagement, along with expanded disclosure of executive compensation packages, will assist in obviating the need for the exercise of a draconian shareholder resolution to remove directors.

Originality/value

This paper offers an in‐depth review of the “say‐on‐pay” legislative and corporate governance controversy; places the issue in the context of effective corporate governance; recommends a reasoned approach to executive compensation accountability; and offers a list of research questions for corporate governance and human resource management scholars to pursue.

Citation

Hemphill, T.A. and Lillevik, W. (2009), "US “say‐on‐pay” legislation: Is it corporate governance overreach?", International Journal of Law and Management, Vol. 51 No. 2, pp. 105-122. https://doi.org/10.1108/17542430910947121