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Say On Pay Provision


A key provision within the Dodd-Frank Act that requires publicly held companies to submit executive compensation plans to nonbinding, advisory votes by shareholders every 3 years. However, given the purely advisory nature of such requirements, companies are not required to modify their compensation packages based on shareholder votes. Moreover, companies that choose to disregard shareholder feedback can do so with virtual impunity because the law does not specify any penalties if companies reject such votes.

Since enactment of the "say-on-pay" provision, only a small percentage of "no" votes by shareholders have been recorded. And even among companies that failed to engender changes in executive compensation packages (in response to "no" votes), meaningful consequences from a liability standpoint have not arisen. One tactic adopted by plaintiffs' attorneys is to bring lawsuits even before say-on-pay votes are actually held. Instead of challenging the size of executive compensation packages, these suits allege that firms failed to provide shareholders with adequate information on which they can cast informed votes regarding executive pay packages.

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