On February 22, 2012 the Harvard Law School Forum on Corporate Governance and Financial Regulation published a report entitled “Lessons Learned: The Inaugural Year of Say-on-Pay” Anne Sheehan, the Director of Corporate Governance at the California State Teachers’ Retirement System (CalSTRS), says “For CalSTRS the first year of Say-on-Pay was a learning opportunity as it helped us to refine our voting process for future years.”
Showing a number of charts and metrics considered in their votes Sheehan continued “CalSTRS believes that all companies should use value-creating performance metrics for short- and long-term incentive plans. While we understand that boards of directors require some flexibility when determining compensation, we believe the majority of executives’ incentive pay should be transparent and easily understood by shareholders. Although there is no one-size-fits-all solution to executive compensation, we believe the over-use of discretion in most plans can lead to outsized compensation levels and fails to meet the spirit of section 162(m) if the Internal Revenue Code which requires performance-based pay to be predetermined and objectively measurable…. we believe that poorly structured pay packages harm shareholder value by unfairly enriching executives at the expense of owners – the shareholders.”
As Kevin LaCroix of the D&O diary observes: “Sheehan’s post and her description of the approach of CalSTRS heading into the second say-on-pay cycle makes it clear that there will be continued pressure on many companies regarding their compensation practices and disclosures,”
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