'Say-on-Pay' Movement Loses Steam

The solution, he said, is not to have a system to reject pay but to create a better election process for directors who serve on compensation committees.

For their part, supporters said the shareholder vote is just one factor that boards should consider when negotiating executive pay and that this process has led to meaningful dialogue between directors and investors in places like Britain, where it is mandated by law.

Ed Durkin, director of corporate affairs for the United Brotherhood of Carpenters and Joiners, said he worries that say-on-pay could fuel further increases in executive compensation because most shareholders were likely to vote for plans unless they were noticeably out of line with pay levels at similar companies.

Instead, his group is pushing for measures that seek to link pay to performance more directly, filing 34 such "pay for superior performance" proposals this year. Of those, his group has withdrawn 28 after companies agreed to modify or consider changes to their pay plans, Durkin said.

He said new Securities and Exchange Commission rules that require companies to disclose more information about pay are helping shareholders better understand the compensation granted to senior management. Shareholders, Durkin said, will be able to use the data to conduct deeper analysis and meaningful dialogue with companies.

The expanded disclosure requirements, which went into effect last year, have been criticized for their dense legalese and lack of transparency. After last year's shareholder season, the SEC sent letters to hundreds of companies asking them to better explain how and why their executives are paid the way they are.

Data suggest that while the pace of change is glacial, more companies are tying a larger portion of their chief executive pay directly to performance and disclosing performance targets more clearly.

In 2007, 42 percent of the compensation for chief executives of companies in the Standard & Poor's 500-stock index was linked directly to predetermined performance goals, compared with 40 percent in 2006 for the same group of executives, according to Equilar, an executive-compensation research firm. Stock options were not counted as part of performance-based pay.

Over the same period, the number of Fortune 100 companies disclosing specific performance targets for executives increased from 56 to 66 percent, Equilar said.

In the meantime, some companies have begun giving their shareholders a form of say on pay. At Littlefield, an Austin-based gaming firm, the company is asking investors to vote on two advisory proposals regarding pay. The resolutions seek investor input on whether the total compensation received by the chief executive and directors in 2007 is within 20 percent of an acceptable amount.

At RiskMetrics, the management is putting forward three pay-related proposals, asking shareholders whether they approve its compensation philosophy, how it was applied in 2007 and how the company plans to apply it in 2008.

"I wouldn't be surprised to see [say-on-pay proposals] retooled somewhat to be more specific," said Claudia H. Allen, chairwoman of the corporate governance practice group at Neal Gerber & Eisenberg. "Not everybody agrees on what they're voting on."