What Is a Say-on-Pay Vote?
Say-on-pay (SOP) is an advisory vote at a company's annual shareholder meeting where investors approve or disapprove of the compensation paid to the company's named executive officers. The vote is on the Compensation Discussion and Analysis (CD&A) section of the proxy statement.
The vote is non-binding — even if shareholders vote against the pay package, the company is not legally required to change it. However, a failed or low-approval say-on-pay vote creates significant pressure on the board's compensation committee to make adjustments.
What Do the Numbers Mean?
Strong support. Shareholders are broadly satisfied with the compensation structure.
Mixed signals. Proxy advisors (ISS, Glass Lewis) may have recommended against. Board should engage shareholders.
Serious concern. Companies typically make significant compensation changes the following year.
Rare but impactful. Only about 2-3% of Russell 3000 companies fail. Boards face intense pressure to overhaul pay.
Who Influences the Vote?
Two proxy advisory firms dominate the landscape:
- Institutional Shareholder Services (ISS) — advises over 2,000 institutional investors. An ISS “against” recommendation typically reduces support by 20-30 percentage points.
- Glass Lewis — the second-largest proxy advisor. Their recommendations also carry significant weight with institutional investors.
These firms evaluate pay packages against peer groups, performance alignment, and governance best practices. Their recommendations are often the strongest predictor of say-on-pay outcomes.
What Happens After a Low Vote?
Companies that receive low say-on-pay approval typically respond in predictable ways:
- Increased shareholder engagement — direct outreach to top institutional holders
- Changes to compensation structure — more performance-based pay, lower guaranteed compensation
- Enhanced disclosure — clearer explanation of the link between pay and performance
- Peer group adjustments — moving to more appropriate comparison companies
Research shows that companies with failed say-on-pay votes reduce CEO pay by an average of 10-15% the following year.
Say-on-Pay and CEO Pay-for-Performance
Say-on-pay approval is one of four factors in our Pay-for-Performance Score, weighted at 20%. High shareholder approval signals that investors believe the pay structure is reasonable. Low approval suggests a disconnect between pay and performance.
See which companies have the lowest shareholder approval on our Say-on-Pay Watchlist.
Legal Background
Say-on-pay was mandated by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010), codified as 15 U.S.C. § 78n-1. The SEC's implementing rules (Rule 14a-21) took effect for the 2011 proxy season. Companies must also hold a “say-on-frequency” vote every six years to determine whether say-on-pay votes happen annually, biennially, or triennially.