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.