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Say on Pay Around the World Washington University Law Review Volume 92 Issue 3 2015 Say on Pay Around the World Randall S. Thomas Vanderbilt University Christoph Van der Elst Tilburg Law School, Tilburg University Follow this and additional works at: https://openscholarship.wustl.edu/law_lawreview Part of the Benefits and Compensation Commons, Business Organizations Law Commons, and the Labor and Employment Law Commons Recommended Citation Randall S. Thomas and Christoph Van der Elst, Say on Pay Around the World, 92 WASH. U. L. REV. 653 (2015). Available at: https://openscholarship.wustl.edu/law_lawreview/vol92/iss3/7 This Article is brought to you for free and open access by the Law School at Washington University Open Scholarship. It has been accepted for inclusion in Washington University Law Review by an authorized administrator of Washington University Open Scholarship. For more information, please contact [email protected]. SAY ON PAY AROUND THE WORLD RANDALL S. THOMAS CHRISTOPH VAN DER ELST TABLE OF CONTENTS INTRODUCTION ........................................................................................ 655 I. DESCRIPTION OF THE SAY ON PAY REGIMES: LEGAL RULES AND VOTING OUTCOMES ........................................................................ 658 A. Say on Pay in the U.S. ............................................................. 659 1. Development .................................................................... 659 2. Dodd–Frank Requirements ............................................. 660 3. Impact of Say on Pay ....................................................... 661 B. U.K. Say on Pay ...................................................................... 664 1. Early Legislation ............................................................. 664 2. The Effects of Nonbinding Say on Pay in the U.K. .......... 665 3. New Legislation Implementing Binding Say on Pay ....... 668 C. Say on Pay in Australia ........................................................... 669 1. Overview .......................................................................... 669 2. Say on Pay: The Two-Strike Rule .................................... 670 3. Initial (Mixed) Reactions to the Two-Strike Rule ............ 673 D. Belgium ................................................................................... 675 1. Regulatory Framework for Shareholder Approval of Executive Remuneration Arrangements .......................... 675 2. Assessment of Shareholder Voting Power on Executive Remuneration Agreements in Belgium ............................ 678 E. France ..................................................................................... 680 1. Regulatory Framework for Shareholder Approval of Executive Remuneration Arrangements .......................... 680 John S. Beasley Professor of Law and Business, Vanderbilt Law School, Vanderbilt University, Nashville, Tennessee, USA. Professor of Business Law and Economics, Tilburg Law School, Tilburg University, Netherlands; Ghent University, Department of Economic Law, Ghent, Belgium. We thank Professors Marco Becht and Jeffrey Gordon and the participants of the Conference on the Realities of Stewardship for Institutional Owners, Activist Investors and Proxy Advisors, sponsored by Columbia Law School and the European Corporate Governance Institute, the Conference on Ownership and Control After the Global Financial Crisis Conference sponsored by University of Auckland, and the Conference on Developments in Corporate Governance—East Meets West, sponsored by the University of Sydney Law School, for their helpful comments. 653 Washington University Open Scholarship 654 WASHINGTON UNIVERSITY LAW REVIEW [VOL. 92:653 2. Assessment of Shareholder Voting Power on Executive Remuneration Agreements in France .............................. 684 a. Voting on Total Board Pay ...................................... 684 b. Strength of Shareholder Voting on Other Elements of Executive Pay ....................................... 685 F. Germany .................................................................................. 688 1. Regulatory Framework for Shareholder Approval of Executive Remuneration Arrangements .......................... 688 a. The Two-Tier Board Structure................................. 688 b. Shareholder Approval Requirements for Executive Remuneration ........................................................... 689 2. Assessment of Shareholder Voting Power on Executive Remuneration Agreements in Germany ........................... 690 a. Executive Remuneration in Germany ...................... 690 b. Results of Shareholder Voting on Executive Remuneration ........................................................... 692 G. Sweden ..................................................................................... 694 1. Regulatory Framework for Shareholder Approval of Executive Remuneration Agreements .............................. 694 2. Assessment of “Say on Pay” in Sweden .......................... 697 H. The Netherlands ...................................................................... 700 1. Regulatory Framework of the Dutch Board Structure and Remuneration Arrangements .................................... 700 a. The Two-Tier Board Structure................................. 700 b. The One-Tier Board Structure ................................. 701 2. Executive Remuneration .................................................. 701 3. Assessment of Say on Pay ................................................ 703 I. Summary of Countries’ Different Features ............................. 707 II. WHY IS SAY ON PAY BEING ADOPTED? ............................................. 711 A. Diverse Versus Concentrated Ownership Patterns ................. 711 B. The Effects on Executive Compensation of Increased Stock Ownership by Institutional Investors ...................................... 716 C. Social Intolerance of Income Inequality ................................. 720 D. Political Party Enacting the Legislation ................................. 723 E. State Ownership of Major Enterprises .................................... 727 III. PREDICTIONS ABOUT THE FUTURE OF SAY ON PAY .......................... 728 https://openscholarship.wustl.edu/law_lawreview/vol92/iss3/7 2015] SAY ON PAY AROUND THE WORLD 655 INTRODUCTION Shareholders have long complained that top executives are overpaid by corporate boards irrespective of their performance.1 Traditionally largely powerless to prevent these perceived abuses, investors have sought a way to gain greater influence over directors’ compensation decisions. While many governments responded by increasing the level of corporate disclosures on compensation packages and policies, and occasionally tinkering with tax policies in efforts to reduce pay levels, none of these changes has had much impact.2 However, investors have continued to put pressure on governments to change the status quo. In 2002, these efforts led the U.K. to adopt legislation requiring public companies to permit their shareholders to have a mandatory, nonbinding vote on the compensation of their top executives (“Say on Pay”).3 Since that time, there has been a wave of Say on Pay legislation enacted in countries around the world, including the U.S., Australia, Belgium, the Netherlands, and Sweden, with Swiss voters most recently approving a binding shareholder vote on executive remuneration.4 In this Article, we examine these new legislative iniatives carefully and ask why they have been so widely adopted, how effective they are, and whether they are likely to be adopted in other countries.5 1. Examples of these complaints are mentioned throughout LUCIAN BEBCHUK & JESSE FRIED, PAY WITHOUT PERFORMANCE: THE UNFULFILLED PROMISE OF EXECUTIVE COMPENSATION (2004). For a conflicting view, see John E. Core, Wayne R. Guay & Randall S. Thomas, Is U.S. CEO Compensation Inefficient Pay Without Performance?, 103 MICH. L. REV. 1142 (2005). 2. In fact, some commentators claim that these regulatory initiatives have generally been ineffective or counterproductive. Kevin J. Murphy, The Politics of Pay: A Legislative History of Executive Compensation, in RESEARCH HANDBOOK ON EXECUTIVE PAY 11, 11 (Randall S. Thomas & Jennifer G. Hill eds., 2012). 3. Fabrizio Ferri & David A. Maber, Say on Pay Votes and CEO Compensation: Evidence from the U.K., 17 REV. OF FIN. 527 (2013). For an early article debating the merits of Say on Pay that preceded the U.K. adoption, see Brian R. Cheffins & Randall S. Thomas, Should Shareholders Have a Greater Say over Executive Pay?: Learning from the U.S. Experience, 1 J. CORP. L. STUD. 277 (2001). 4. The Swiss Parliament enacted the law on November 20, 2013, which came into force on January 1, 2014 but contains a long transition term. Press Release, Der Bundesrat, Eidgenössisches Justiz- und Polizeidepartement EJPD, Umsetzung der Abzocker-Initiative: Verordnung tritt am 1. Januar 2014 in Kraft (Nov. 20, 2013), http://www.ejpd.admin.ch/content/ejpd/de/home/ dokumentation/ mi/2013/2013-11-20.html. Swiss voters did, however, reject proposed caps that would have limited executive pay to twelve times that of the lowest paid worker. Jack Ewing, Swiss Voters Decisively Reject a Measure to Put Limits on Executive Pay, N.Y. TIMES, Nov. 24, 2013, available at http://www.nytimes.com/2013/11/25/business/swiss-reject-measure-to-curb-executive-pay.html?_r=0. 5. We are more precise about these issues than some other recent empirical studies. See, e.g., Riccardo Correa & Ugur Lel, Say
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