In Depth
Say-on-pay is an annual shareholder vote mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. During the company's annual meeting, shareholders cast an advisory vote approving or disapproving the compensation paid to named executive officers as disclosed in the proxy statement. While the vote is non-binding, meaning the board is not legally required to change pay even if a majority votes against it, low approval rates carry significant consequences. Companies receiving less than 70% approval often face increased scrutiny from institutional investors and proxy advisory firms in subsequent years. Boards that ignore shareholder dissatisfaction risk proxy fights, director vote-no campaigns, and reputational damage. In practice, say-on-pay has proven to be a powerful governance tool. The average S&P 500 say-on-pay approval rate is typically around 90%, meaning that companies falling significantly below this benchmark stand out as outliers. When approval drops below 50%, the company usually undertakes a comprehensive compensation overhaul, including direct engagement with major shareholders to understand their concerns. The SEC requires companies to disclose how they responded to the previous year's say-on-pay vote in the CD&A section of the following year's proxy statement.