Friday, June 22, 2012

Shareholder Power: Say-on-Pay

Recent Developments in the US: Dodd Frank Act, section 951, requires companies to approach shareholders for their non-binding vote on executive compensation and golden parachutes.
Recent Developments in the UK: A new proposal would require companies to approach their shareholders for a binding vote on executive pay.
Existing Position in India: Managerial remuneration has been historically restricted to a substantial extent. Subject to profitability of the company, senior management’s pay is subject to quantitative restrictions, to shareholders’ approval and often even to Central Government approval, all determined on the basis of sections 198, 269 and 309 and Schedule XIII of the Companies Act.
If the movements in the US and UK arose due to less regulation of executive pay, the grouse on the Indian side has been one of excessive regulation.


vswami said...

"If the movements in the US and UK arose DUE TO LESS REGULATION of executive pay,....".

Contrary to the impression given, the movements (recent developments)in the US and UK appear to be mutually in opposiite directions; beg to be corrected, if one's understanding is mistaken.

Prof Bala said...

gThe Indian problem is rooted in the concentrated ownership structures of companies. Binding or advisory, no regulation or legislation can address unconscionable executive compensation levels unless interested shareholders are preempted from voting at general meetings on resolutions where they stand to gain. Even this may not work so long as our institutional and block investors do not exercise their legitimate power to moderate decisions that are inimical to the interests of negatively impacted shareholders. Proposals to this effect in the past have understandably been stonewalled by vestd interests or diluted atthe legislative or regulatory levels but one can only hope for more positive developments in the near future.
Prof Bala

Lillian Delmaire said...

Is this shareholders' vote binding or just advisory? I had a look on cases of China and Japan, which have similar requirements, maybe less quantitive restricts, as in India, but concerntated ownership structure in both countries rends the SOP meaningless for minority shareholders.

Lillian Delmaire said...
This comment has been removed by the author.
Lillian Delmaire said...

Hard to interprate from the tex of Company Act(Bill) whehter this vote is binding or not. However, I definitely agree with you, binding or not in the context like India, CHina, Japan, is not much important unless voting conditions change.