What is Say-on-Pay

Say-on-pay is a shareholder vote on how a public company pays its top executives. Regulators introduced it to give owners a direct channel to applaud, question, or reject the compensation packages their boards hand out, and most major markets now require some version of it.

In the US, the vote is advisory and rarely fails. Median support across the Russell 3000 sat at 94.5% in 2025, with only about 1.2% of companies losing their vote. The interesting story is what happens in that narrow band of rejections, and why boards still care about a vote they are legally free to ignore.

The Core Mechanics

Who Votes and On What

Every shareholder of record gets a vote, weighted by shares held. The resolution asks them to approve the compensation of the company's "named executive officers," which typically means the CEO, CFO, and the next three highest-paid executives disclosed under Item 402 of Regulation S-K. Directors' pay, rank-and-file compensation, and broad HR policies sit outside the vote.

Advisory vs. Binding

This is where jurisdictions diverge. In the United States, the vote is non-binding. A board can lose decisively and still pay the CEO every dollar listed in the proxy. The UK runs a hybrid: the backward-looking implementation report is advisory, but the forward-looking remuneration policy must pass a binding vote at least every three years, and a company that fails must keep operating under its previously approved policy. Australia uses a "two strikes" rule where two consecutive failed votes can trigger a board spill resolution.

Say-on-Frequency

US companies also run a separate vote letting shareholders pick how often the say-on-pay vote happens: every one, two, or three years. This frequency vote itself must be held at least once every six calendar years. Annual is now the dominant choice by a wide margin, though the rules allow any of the three.

How It Started

The UK Precedent

The UK moved first. The Directors' Remuneration Report Regulations 2002 required quoted companies to put their remuneration report to an advisory shareholder vote starting in 2003. For a decade the vote had limited bite. Academic work covering 2000 to 2005 found no meaningful effect on CEO pay levels, and later studies suggested the vote only restrained pay when dissent climbed above roughly 10%, a threshold rarely crossed in practice.

Parliament responded with the Enterprise and Regulatory Reform Act 2013, which added the binding policy vote on top of the existing advisory vote. That regime took effect for financial years ending on or after October 2013.

Dodd-Frank and the US Rollout

The US followed eight years after the UK. Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in July 2010, mandated a shareholder advisory vote on executive compensation. The SEC issued final implementing rules in January 2011, and companies began holding say-on-pay votes at annual meetings occurring on or after January 21, 2011.

The timing matters. Dodd-Frank passed in the direct aftermath of the financial crisis, when outsized banker bonuses had become a political lightning rod. Giving shareholders a vote was cheaper and easier than capping pay outright, and it fit a broader disclosure-based philosophy that has shaped US securities law since the 1930s.

What Shareholders Actually Vote On

The proxy doesn't just put a dollar figure on the ballot. It includes the Compensation Discussion and Analysis section, the summary compensation table, grants of plan-based awards, outstanding equity holdings, option exercises, pension values, and potential payments on termination or change in control. Shareholders are voting on the whole package and its design logic, not just a single number.

Most institutional investors outsource the reading. Proxy advisers like Institutional Shareholder Services and Glass Lewis score each package against their own frameworks and issue a recommendation, which large index funds and pension plans often follow closely. ISS recommended "against" roughly 9% of Russell 3000 say-on-pay proposals in 2025, a meaningful but far-from-dominant share.

When Votes Fail

Pass Rates and Red Zones

Failure is rare. Across the Russell 3000 in 2025, 23 companies lost their say-on-pay vote through late June, or about 1.2%. The S&P 500 saw 5 failures, also 1.2%. Average support held in the high 80s to low 90s depending on index. Diligent's full-year 2025 data counted 34 Russell 3000 failures for the period, with another 144 companies landing in the "red zone" of 30% or more opposition, a level that usually triggers formal shareholder engagement under ISS and Glass Lewis policies.

Notable Failures

Citigroup's 2012 rejection is the case most people remember. Shareholders voted down a $15 million package for CEO Vikram Pandit at the April 17, 2012 annual meeting, the first major US bank to lose a say-on-pay vote and one of only a handful of failures that season. Anne Simpson of CalPERS, which held 10 million Citi shares, told PBS the fund voted no because the package did not tie rewards to long-term performance.

Netflix offers a different pattern. Shareholders rejected executive compensation in 2022 and again on June 1, 2023, the second vote landing during the writers' strike. The board noted the feedback, adjusted disclosures, and pressed on, illustrating both the power and the limits of an advisory vote.

The biggest pay-vote story of the decade sits partly outside the say-on-pay frame. Tesla shareholders approved Elon Musk's 2018 option grant in a binding vote under Delaware law. A Delaware Chancery judge voided the package in January 2024 on fiduciary-duty grounds, Tesla shareholders ratified it again in June 2024 by roughly 77% of votes cast, and the Delaware Supreme Court reinstated the grant on December 19, 2025, with the award then reported as worth around $139 billion. The episode is a reminder that shareholder votes interact with, rather than replace, fiduciary law.

Does It Change Behavior

The honest answer is: modestly, and at the margins.

UK research covering the first decade of the regime found that dissent below about 10% had no restraining effect on pay and may have slightly encouraged higher awards, while dissent above that threshold moved the needle, especially at the top of the pay distribution. US evidence points the same direction. CEO pay has continued to climb, hitting record levels in 2025 even as median say-on-pay support drifted down from 94.9% to 94.5%.

What has changed is the conversation. Compensation committees now draft packages with proxy-adviser frameworks in mind, companies run shareholder engagement campaigns before the proxy hits, and the amount of disclosure in the average proxy statement has grown considerably since 2010. Whether any of that produces better pay design or just better-looking pay design is still debated.

Criticisms and Limits

Three critiques come up most often.

The first is that advisory votes are theater. Boards can ignore them, and most do when they disagree with the outcome. Netflix losing twice in a row and keeping its pay structure largely intact is Exhibit A.

The second is that say-on-pay entrenches proxy advisers. When two firms effectively write the rulebook, compensation design converges toward what ISS and Glass Lewis will approve, not necessarily what fits the business. Critics argue this imports a generic template onto companies with very different strategies.

The third is scope. Say-on-pay covers a handful of named executives. It does not cover director fees, broad employee compensation, or pay ratios across the workforce, though the SEC did add a separate CEO pay-ratio disclosure rule under Dodd-Frank.

What Boards Do in Response

A failed vote, or even a close one, usually triggers a predictable sequence. The compensation committee meets with major shareholders to diagnose the complaint. Proxy advisers get a hearing. The next proxy includes a "response to shareholders" section explaining what the board heard and what it changed, often with tighter performance metrics, longer vesting periods, or reduced one-time awards. Companies that repeat the dance without course correction tend to see opposition grow the following year.

Say-on-pay will not flatten executive pay curves. It was never designed to. It was designed to put a price on ignoring shareholders, and on that narrow measure it works. The companies that treat the vote as a feedback loop get quieter proxy seasons. The ones that treat it as a formality usually find out, eventually, that a non-binding vote can still cost a director their seat.