Say on pay is a non-binding shareholder vote on executive compensation. Institutions use it to signal approval or dissent on remuneration policies, board pay practices, and compensation structure alignment with long-term performance.
Say on pay (SoP) is a shareholder mechanism permitting investors to cast non-binding votes on executive compensation packages at annual general meetings. The practice grants asset owners direct input into remuneration policy, creating accountability between boards and shareholders on wage-setting practices.
Across the developed world, say on pay has evolved from a governance innovation into a structural expectation. What began as a voluntary mechanism in the United Kingdom following the 2008 financial crisis is now mandatory in the European Union, Australia, Switzerland, and most Commonwealth jurisdictions. In the United States, the Dodd-Frank Act of 2010 made say on pay votes a statutory requirement for all publicly listed companies, though votes remain advisory rather than binding. This distinction matters: a company may ignore shareholder dissent on pay, but doing so triggers reputational costs and escalates pressure for board reform.
How did say on pay emerge as a governance standard?
Say on pay emerged in response to executive remuneration that bore no clear relationship to company performance. The 2008 financial crisis crystallized the problem. Major financial institutions collapsed or required taxpayer rescue while their executives retained multimillion-dollar packages and pension guarantees. Shareholders and policymakers alike questioned whether existing governance structures adequately checked compensation practices.
The United Kingdom moved first. Following a report by the High Pay Commission in 2009, the Financial Reporting Council and the Department for Business, Innovation and Skills mandated say on pay votes as of 2002 for FTSE 100 companies. Early experience showed the mechanism worked: companies that received below 80% shareholder support on pay proposals faced board pressure to revise remuneration policy. The practice spread rapidly through Europe, with the EU Shareholders' Rights Directive (2007, revised 2017) requiring say on pay votes across member states.
Australia introduced mandatory say on pay votes in 2011, tied to a two-strikes rule: if a company receives consecutive votes below 25% support on remuneration reports, shareholders can trigger a board spill vote. This escalation mechanism has proven consequential. In 2022, the ANZ Banking Group faced a second strike on pay following public disputes over executive bonuses awarded during a period of significant compliance failures. The threat of forced board replacement led ANZ's board to restructure incentive plans substantially.
The United States adopted say on pay through the Dodd-Frank Wall Street Reform and Consumer Protection Act, effective in 2011. However, Congress chose to make say on pay votes advisory. This reflects longstanding American corporate law doctrine that boards possess fiduciary authority over compensation decisions. A shareholder vote of 90% against a pay package carries no legal force; the board may retain the compensation structure if it believes doing so serves the corporation. In practice, however, say on pay votes in the U.S. have become increasingly consequential. Companies receiving sustained opposition have restructured executive packages, adjusted CEO pay ratios, and enhanced clawback provisions following unfavorable votes.
What do institutional investors use say on pay for?
For institutional asset owners—particularly large pension funds, sovereign wealth funds, and endowments—say on pay votes function as a direct stewardship lever. Unlike proxy advisory firms, which recommend votes to thousands of clients, large allocators often develop proprietary remuneration frameworks and vote accordingly.
The Norwegian Government Pension Fund Global (GPFG), with approximately $1.3 trillion in assets under management as of 2024, publishes detailed voting guidelines on executive pay. The fund votes against remuneration packages it deems misaligned with long-term value creation. GPFG distinguishes between fixed pay (salary, benefits) and variable compensation (bonuses, equity). It opposes packages where variable pay exceeds 200% of fixed pay unless clearly linked to performance metrics spanning at least three years. This framework reflects the fund's view that excessive short-term incentives encourage risk-taking misaligned with intergenerational shareholder interests.
Similarly, the Ontario Teachers' Pension Plan (OTP), with approximately $251 billion in AUM, integrates say on pay voting into its stewardship program. OTP publishes annual voting reports detailing its say on pay positions. The plan emphasizes clawback provisions (the ability to recover compensation if financial restatements occur) and malus conditions (the ability to reduce bonuses before vesting if performance targets are missed). Between 2020 and 2023, OTP voted against 8.2% of say on pay proposals globally, a rate roughly double the average dissent level, indicating the plan's use of say on pay as an active stewardship tool rather than a rubber stamp.
U.S. pension funds, particularly large plans like the California Public Employees' Retirement System (CalPERS) and the New York State Common Fund, regularly vote against CEO pay packages. CalPERS, with $440 billion in AUM as of 2024, votes against compensation packages where CEO pay ratios exceed 100:1 relative to median worker pay. This approach reflects the fund's belief that extreme wage disparity signals governance dysfunction.
Endowments also employ say on pay as stewardship. The Yale Endowment and similar large university funds are documented to support remuneration frameworks that emphasize multi-year vesting periods and equity holdings for executives, on the grounds that shared ownership aligns management with long-term stakeholder interests. This aligns with principles outlined in discussions of The Endowment Model (Yale Model), Explained.
What metrics do allocators examine in say on pay decisions?
Large asset owners do not vote say on pay proposals uniformly. Institutional investors employ several analytical frameworks:
Performance-linked metrics: Compensation must connect to measurable, auditable performance targets. These typically span three to five years. Allocators distinguish between financial targets (earnings growth, return on equity) and non-financial metrics (customer satisfaction, environmental compliance, talent retention). Many institutional investors now demand that a portion of executive equity awards vest only if the company meets absolute or relative total shareholder return targets over multi-year periods.
CEO pay ratio: The relationship between CEO compensation and median employee pay has become a governance benchmark. The SEC's 2015 pay ratio rule requires U.S. public companies to disclose the ratio of CEO pay to median employee compensation. Institutional investors use this metric to assess whether leadership has maintained reasonable wage discipline. Ratios exceeding 100:1 are increasingly viewed as flagging misalignment between leadership and workforce interests.
Clawback and malus provisions: Asset owners scrutinize whether compensation structures include mechanisms to recover or reduce pay if the company restates earnings or misses performance targets. These provisions were strengthened by the Dodd-Frank Act and the Sarbanes-Oxley Act for financial institutions. Allocators view robust clawback language as evidence of accountability.
Time horizons for vesting: Institutional investors, particularly those with Liability-Driven Investing (LDI), Explained frameworks that emphasize long-term de-risking, favor equity compensation with three- to five-year vesting windows. Shares that vest immediately or over one year are seen as creating myopic incentives.
Non-financial performance criteria: Increasingly, large asset owners require that executive remuneration include metrics tied to environmental, social, or governance (ESG) performance. The California State Teachers' Retirement System (CalSTRS), with $312 billion in AUM, votes for remuneration frameworks that include measurable climate transition targets and board diversity metrics as components of executive bonus calculations.
What is the practical impact of say on pay dissent?
Although say on pay votes in most jurisdictions remain advisory, repeated shareholder dissent triggers concrete governance reforms. Research from the European Corporate Governance Institute documents that companies receiving below 50% shareholder support on compensation votes typically undertake remuneration restructuring within 12 months. These changes include adjusting the balance between fixed and variable pay, modifying performance metrics, adjusting peer groups used for benchmarking, or replacing compensation committee members.
The 2022 EasyJet annual general meeting provides a concrete example. The airline received 54% shareholder support for its remuneration policy—a clear fail by governance standards. The dissent centered on executive bonuses paid despite severe operational disruptions and customer harm. Following the vote, EasyJet's board terminated its chief executive's pension accrual, restructured executive severance provisions, and required longer equity vesting periods. These changes directly reflected shareholder feedback via the say on pay vote.
In Australia, where two consecutive strikes on remuneration trigger a board spill, the mechanism has proven consequential. The Australian Securities Exchange (ASX) Corporate Governance Council notes that as of 2023, twelve listed companies have faced second strikes, and eight underwent board restructuring as a result. This escalation mechanism—absent in the U.S. and most European markets—creates stronger board accountability for compensation policy.
How does say on pay interact with other stewardship tools?
Say on pay votes function within a broader stewardship ecosystem. Large allocators coordinate say on pay positions with proxy advisory voting, direct engagement with boards, and longer-term capital allocation decisions.
For What Is an OCIO (Outsourced CIO)?, integration of stewardship voting into outsourced mandates has become a standard expectation. Allocators increasingly require that their OCIO partners vote proxies according to the allocator's stewardship framework, rather than following a generic proxy advisory firm recommendation. Say on pay is a high-visibility vote where differentiation matters; allocators that outsource investment management but retain voting authority often maintain proprietary say on pay frameworks distinct from their advisor's default positions.
For Single vs Multi-Family Office: How They Differ, family offices with substantial concentrated holdings in operating businesses or real estate development firms often employ say on pay frameworks for the management companies they control or influence. A family office may retain voting authority over executive compensation for a private company where the family is a major shareholder, using say on pay mechanisms analogous to those used for public market holdings.
Asset managers integrating What Is Private Credit? An Allocator's Guide into their portfolios also encounter compensation governance questions. Private credit funds increasingly invest in operating company debt with board observation or control rights. In these structures, investors may engage directly on executive compensation rather than through say on pay votes, but the underlying framework—scrutinizing performance-linked pay, clawback provisions, and pay ratios—remains consistent.
What are the emerging issues in say on pay governance?
Several tensions have emerged in say on pay practice over the past five years:
Variable pay escalation: Despite say on pay requirements, variable compensation as a percentage of executive packages has grown across developed markets. The challenge for allocators is that variable compensation structures have become increasingly complex. Targets may include non-financial metrics that are difficult to audit, performance periods may be shorter than desired, and definitions of "performance" may shift year to year. Institutional investors are responding by demanding greater transparency on how performance conditions are established and independently verified.
Disconnect between institutional voting and beneficiary interests: Large pension funds and endowments vote against executive compensation packages on governance grounds, but beneficiary populations may have indirect interests in those companies as employees or customers. This creates potential tension. For example, a pension fund may vote for pay restrictions at a consumer goods company, but beneficiaries may work for suppliers whose profitability depends on that company's margins. Allocators manage this tension through long-term frameworks that emphasize systemic value creation rather than year-to-year shareholder returns.
Regulatory divergence: Say on pay rules differ materially across jurisdictions. U.S. votes are advisory; Australian votes can trigger board spill; EU votes are binding in some member states. This creates complexity for multinational allocators. A global asset owner must maintain distinct say on pay voting frameworks for different geographic markets, increasing operational cost and introducing risk of inconsistency.
Environmental and social targets in executive pay: An emerging consensus holds that executive compensation should include non-financial performance criteria, including greenhouse gas reduction targets and workforce diversity metrics. However, operationalizing these criteria creates measurement challenges. What constitutes "adequate" progress on climate? How are diversity targets calibrated to company context? Allocators are still developing consistent frameworks for evaluating these dimensions.
Implications for long-term allocators
Say on pay has evolved from a post-crisis governance experiment into a material lever for institutional asset owners. For allocators with 10- to 30-year investment horizons, say on pay voting should be integrated into a coherent stewardship strategy that emphasizes long-term value creation.
This requires developing explicit, published remuneration frameworks—not generic proxy advisory recommendations—and voting accordingly, even when such votes diverge from market consensus. Allocators should recognize that say on pay provides direct accountability channels to boards and should exercise this authority in ways that align with portfolio company incentives toward sustainable, measurable performance.
Large allocators should also develop mechanisms to aggregate stewardship positions across direct public equity holdings, Liability-Driven Investing (LDI), Explained mandates, and any significant indirect holdings through partnerships or fund investments. This coordination reduces the risk of conflicting messages sent to portfolio companies and improves the likelihood that say on pay voting influences actual governance reform.
Finally, allocators should view say on pay as complementary to, rather than substitutive of, direct board engagement on remuneration policy. An advisory vote creates an occasion for deeper