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March 8, 2013

Shareholders in Europe Demand Control

Voters in Switzerland this week overwhelmingly approved a referendum to give shareholders a binding say on executive pay. The Swiss measures are the latest and most far-reaching of various say-on-pay policies now in place or under consideration in many European nations. Denmark, Norway, Sweden and the Netherlands all have some form of voting on binding pay.The Swiss measures require lawmakers to pass a law giving shareholders the right to hold a binding vote on all compensation for executives and directors of Swiss-based public companies. The law will also ban one-time bonuses for joining or leaving a company, and it will require greater transparency. For example, pension funds will have to disclose how they vote at shareholder meetings, which will enable a fund’s members to assess whether their interests have been represented.

“Top corporate executives may bristle at the suggestion that they are overpaid. But the higher the pay, the likelier it is to be disconnected from market fundamentals or the concerns of shareholders, employees and, in cases of bailed-out bankers, taxpayers.

“While American laws do not require the level of control imposed by some European nations, the Securities and Exchange Commission has been too slow in carrying out the shareholder protections that are on the books. In the United States, shareholder votes on executive pay are nonbinding. That’s better than having no say at all, which was the case before the rules were changed in 2011 under the Dodd-Frank law. But a nonbinding vote still regards shareholders as advisers, rather than owners. And the S.E.C. has not yet proposed rules to implement a Dodd-Frank provision that requires companies to calculate and disclose the ratio of a chief executive’s compensation to the company’s median pay package. That data is crucial to gauging whether executive pay is excessive and how pay disparities affect company performance and the economy.”


Read full New York Times editorial piece here



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