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.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

4 comments

  • "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.

  • 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

  • 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.

  • 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.

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