Say-on-Pay Vote
A Say-on-Pay Vote is a non-binding shareholder vote on a public company's executive compensation program, mandated annually for US public companies by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
The say-on-pay requirement was part of the broad corporate governance reforms enacted following the 2008 financial crisis. Congress reasoned that excessive and poorly structured executive pay had contributed to short-termism and risk-taking at financial institutions, and that empowering shareholders to express their views on pay would improve accountability.
Most US public companies hold the vote annually, though Dodd-Frank permits a triennial cycle. Separately, at least once every six years, shareholders vote on the frequency itself — annually, every two years, or every three years — in a vote called say-on-frequency.
The vote is advisory: even if a majority of shareholders vote against a pay package, the board is not legally required to change anything. However, a low approval rate — particularly one below 70% — creates significant reputational and governance risk, prompting engagement between the company and major shareholders, and often leading to compensation changes in subsequent years. Companies that fail say-on-pay votes by a wide margin face negative board election recommendations from ISS and Glass Lewis, potentially threatening director reelection.
ISS evaluates say-on-pay proposals through a two-part framework: a quantitative test that assesses the correlation between CEO pay and total shareholder return relative to peers, and a qualitative review of pay program features and compensation committee responsiveness to prior shareholder feedback.
In practice, the vast majority of S&P 500 companies receive support above 70%. Contested votes are relatively rare but garner outsized media attention and have catalyzed meaningful changes at well-known companies across multiple industries.