Say on Pay's Bundling Problems

Andrew C. W. Lund, Pace University School of Law

Document Type Article

Working paper


Say on Pay would require public firms to provide shareholders with an advisory vote regarding its most recent year’s executive compensation. Like other efforts to increase shareholder power, Say on Pay has attracted criticism from those who fear that empowering shareholders will harm firms. This Article offers the first critique of Say on Pay internal to the shareholder empowerment movement. In particular, the ex post timing of Say on Pay neuters its ability to influence executive pay at high-performing firms. This theory has been borne out by the experience with Say on Pay in the U.K. where the rule has been in effect for seven years. There, Say on Pay resulted in compensation-related discipline in poorly-performing firms, but not in high-performing firms. The reason for this disparity is that Say on Pay suffers from bundling problems – shareholders reasonably fear offending executives by casting an adverse Say on Pay vote. Those problems are more significant at high-performing firms where the potentially offended executives are believed to be more valuable. The Article suggests that the bundling problems can be mitigated by switching from an ex post to an ex ante vote and provides a blueprint for a CEO Compensation Plan approval requirement.