Note: this article was originally published by the Harvard Law School Forum on Corporate Governance

On January 22nd, 2024, ExxonMobil sued in U.S. District Court two shareholder proponents, Follow This and Arjuna Capital LLC, in order to exclude a co-filed proposal regarding greenhouse gas emissions from the Exxon proxy. In light of Exxon’s outsized legal resources relative to those of the non-profit Follow This and the small socially responsible investor Arjuna (less than $400 million in assets under management as of March 2023), the action was viewed as akin to a SLAPP suit, potentially freezing corporate democracy with regard to shareholder resolutions. The proposal was withdrawn on February 2nd, but Exxon vowed to continue in court. Everyone with an interest in the future of shareholder proposals awaits the development of this case.

On the other side of the world, in November 2023, shareholders of the Australian national airline, Qantas, overwhelmingly rejected the company’s remuneration (Say on Pay) report on the grounds that management had improperly outsourced 1700 ground handler jobs, the “largest sacking found to be illegal” in Australian history, in addition to a litany of other missteps. While the 83% “no” vote was non-binding, under Australian corporate law two consecutive “no” votes of 25% or greater will necessitate that all of the corporation’s directors must stand for re-election. The company’s Chair was chastened: “we hear the message this strong vote sends, particularly in response to broader frustration with past events, and it galvanises our efforts to restore your confidence.”

Investors use “voice” in many ways, most prominently to engage behind closed doors with company managements and boards, and to exercise their voting rights. While the public’s focus has tended toward voting as it pertains to shareholder resolutions, investors also vote for or against directors and, in the majority of OECD countries, are entitled to a Say on Pay vote as well. Say on Pay has been used by shareholders to pronounce almost exclusively on excessive CEO compensation and, collaterally, firm financial performance; withholding support due to environmental or social controversies like the Qantas episode has been the exception.[1] But the recent and growing effort to insert environmental and social incentives into executive pay schemes means that Say on Pay has now become an important tool to monitor the sustainability impacts of corporations. Moreover, investors can use the threat of a low Say on Pay vote to push for rigorous and specific key performance indicators in executive compensation, such as greenhouse gas emissions reduction at Exxon, or fair labor practices at Qantas. Executives do what they are paid to do. Indeed, Say on Sustainability Pay has advantages over both shareholder resolutions and director voting, and should no longer be neglected by socially responsible investors.

Say-on-Pay in the USA

In the U.S., Say on Pay was required by the SEC (terminology differs; the SEC usage is “Say-on-Pay”) for all shareholder meetings on or after January 21st, 2011. In addition to a non-binding vote on the compensation of each firm’s CEO, CFO, and top three other officers, the SEC also required a vote on Say-on-Pay frequency, ranging from annually to every three years. Currently the vast majority of U.S. firms hold their Say-on-Pay votes annually.[2] Disclosure about executive compensation was enhanced when the SEC stipulated that issuers annually disclose the ratio of CEO compensation to that of the median employee, beginning with reference to fiscal 2017 (reported in 2018). The SEC’s most recent pay implementation is the pay versus performance disclosure requirement. From 2023 on, public companies must provide a table disclosing specified executive compensation and financial performance measures for their five most recently completed fiscal years. Also required is a list of three to seven financial performance measures that businesses determine to be their most important. Notably, firms are permitted to include non-financial metrics in this list.

U.S. Say-on-Pay votes typically receive broad shareholder support, but the medium-term trend is downward. The average Say-on-Pay vote result for S&P 500 companies declined continuously since 2017, going from 91.4% in 2017 to 87.2% in 2022, before rising to 88.7% in 2023. The reversal may be related to losses in the stock market the prior year; CEO pay decreased 9% in 2022, a figure that would have been favorably considered at the following year’s AGM. Despite generally firm support however, Say-on-Pay votes that are weak in a relative sense can trigger changes in board and CEO behavior, similar to weaker-than-normal support for board directors.

Is Say-on-Pay Effective for Monitoring?

The main U.S. proxy advisors, Institutional Shareholder Services (ISS) and Glass Lewis, devote considerable attention to Say-on-Pay vote results. ISS may recommend votes against the Board Compensation Committee when a Say-on-Pay proposal receives less than 70% support of votes cast the prior year, while for Glass Lewis the threshold is less than 80%Proxy advisor opinion is a significant factor in Say-on-Pay results. The trend in S&P 500 voting from 2017 to 2023 mimicked the frequency of ISS “against” recommendations for that group of companies, which increased from 9.9% in 2017 to 12.7% in 2022, before dropping back to 9.6% in 2023. The average Say-on-Pay vote for Russell 3000 firms was 26% lower in 2023 in the case of an ISS “against” recommendation.

Low Say on Pay votes create risk for both CEOs and boards. Studies in the U.K. and U.S. indicate that Say on Pay support is inversely related to CEO turnover.[3] In addition, when Say on Pay support is low, directors lose external board seats and compensation committee positions, and external directorial compensation decreases.[4] These effects are similar to those experienced by CEOs and boards when directors themselves receive low shareholder support.[5] Indeed, the two are related: From 2019 to 2023, the average director vote at companies receiving less than 70% Say-on-Pay support was 4% lower the following year.

In light of this pressure on Boards, it is no surprise that Say on Pay has led to positive governance effects around the world. One study of Say on Pay laws in 38 countries found that CEO pay growth rates declined and the portion of total top management pay captured by CEOs decreased. In the two years after the SEC required mandatory reporting, boards responded to failed Say on Pay votes (<50%) by reducing excess compensation. The new ability to monitor pay was welcomed by investors: Firm valuations rose around the world with the introduction of Say on Pay. A study of shareholder-sponsored Say on Pay resolutions in the U.S. prior to its mandatory implementation found that companies experienced positive excess stock returns if these proposals passed. When the House of Representatives passed the Say-on-Pay Bill in 2007, the market reaction was significantly positive for firms with high abnormal CEO compensation.

The Rise of Sustainability-linked CEO Pay

Say-on-Pay can be a very useful tool when investors use it to insert rigorous sustainability incentives into executive compensation. Environmental and social determinants of CEO pay have grown rapidly. In a study of 4,400 public companies in 21 countries, the number of firms that designated sustainability metrics as key performance indicators for executives grew from just 3% in 2010 to 38% in 2021. This increase stems from both investor and regulatory pressure.  A 2021 ISS investor survey found that over half of investor respondents agreed that the use of non-financial sustainability metrics is an appropriate way to incentivize executives. The investor group Climate Action 100+, whose members collectively manage $68 trillion, grades businesses on whether “[t]he company’s executive remuneration scheme incorporates climate change performance elements.” The International Sustainability Standards Board, in its S1 and S2 standards published in 2023, asks reporting firms to state, “whether and how related performance metrics are included in remuneration policies,” and “(i) the percentage of executive management remuneration recognized in the current period that is linked to climate-related considerations; and (ii) a description of how climate-related considerations are factored into executive remuneration.” The soon-to-be-finalized mandatory European Sustainability Reporting Standards stipulate “[d]isclosure of how climate-related considerations are factored into remuneration of members of administrative, management and supervisory bodies.”

U.S. firms have followed apace. The ecosystem of compensation and governance consultants uses a range of definitions and universes, but the direction is clear that U.S. public companies are turning more and more towards incorporating environmental and social incentives into executive pay. The Conference Board’s analysis of 2023 proxy statements revealed that 76% of S&P 500 companies do so. The most prevalent measures that affect executive pay concern diversity and inclusion, carbon footprint and emissions reduction, and a variety of employee engagement, health and safety metrics.

Well-crafted executive compensation incentives have been found to improve both corporate sustainability performance and even financial performance. Studies have shown that:

Nevertheless, none of these beneficial effects are evident unless sustainability-linked performance incentives are rigorous.[6] Key performance indicators are improving, but investors can contribute forcefully to this progress by exercising their Say-on-Pay prerogatives.

Best Practices in Sustainability-linked Compensation

The 2021 ISS Investor Survey of attitudes toward sustainability-linked pay found a favorable impression amongst a majority of investors as long as key performance indicators were specific and measurable, and targets were communicated transparently. Similarly, the governance consultant SquareWell Partners’ survey of the world’s largest 65 investors stressed that sustainability-linked pay targets must be material, quantifiable, transparent, and sufficiently challenging. These characteristics have begun to suffuse into the corporate compensation regime. For example, more companies are moving from qualitative judgements that can be easily gamed to quantitative and auditable targets. It is recommended that sustainability-minded investors push for:

  • Larger weights for sustainability-linked pay: sustainability incentives typically account for less than 20% of executive pay, and often much less.[7] Investors should ensure that these incentives are weighted sufficiently to be material to the pay calculations of senior management.
  • Greater emphasis on long-term performance: the great majority of firms integrate sustainability metrics into the annual bonus only (86% of the S&P 500 as of 2023). This is poor practice for sustainability incentives for a number of reasons. Sustainability is, by definition, a long-term phenomenon, while annual incentives can be changed every year. In addition, long-term incentives generally comprise stock awards which are ultimately much more valuable than an annual cash bonus. Boards have heard investors on this point and are gradually shifting: The percentage of S&P 500 companies that integrate sustainability performance metrics into both their annual incentive plan and their long-term incentive plan has grown from 7.3% in 2021 to 12.4% in 2023, but there is far to go.

Other recommended examples of best practices are provided by the sustainability non-profit Ceres and the compensation consultant Farient Advisors.

Say on Sustainability Pay, Shareholder Proposals, and Directorial Voting

As a method for investors to monitor, and advocate for, sustainability incentives in executive compensation, Say on Sustainability Pay has distinct advantages over shareholder resolutions that ask for pay incentive disclosure. U.S. Say-on-Pay votes are required for every public company and the majority hold these annually, in contrast to the opportunistic filing of shareholder resolutions concerning executive compensation, only seven of which were submitted for the 2023 proxy season. Both Say-on-Pay and shareholder proposals are non-binding in the U.S.

In fact, the non-binding nature of Say-on-Pay may bestow advantages over director “vote no” campaigns as well. Because low Say-on-Pay votes and low votes for directors have similar consequences for boards and CEOs, opposition to a management Say-on-Pay proposal is functionally equivalent to a vote against the board compensation committee. Director elections are binding, however, which may encourage investors to shy away from “the nuclear option.” Over the past six years average S&P 500 Say-on-Pay votes have consistently been 4-5% worse than the average vote for S&P 500 compensation committee chairs. The difference grows starker as the level of dissatisfaction increases: for 2023 Say-on-Pay votes below 70%, the average Say-on-Pay vote was 8% lower than the average vote for the compensation committee chair, and far below the remainder of the compensation committee, who averaged 88% support. A 2020 study of the implied option value of a shareholder’s Say on Pay vote compared countries with binding and non-binding Say on Pay regimes, and found that, “the opportunity to vote on managerial compensation is valued by shareholders whenever pay is not optimally set…. The effects are driven by advisory votes, which indicates that shareholders value flexibility (advisory votes) over strictness (binding votes), a piece of evidence that should not be overlooked by regulators.” As lower votes carry a more forceful message, investors who vote against a Say on Pay proposal may find that they have a louder voice than those who engage in a vote no campaign against the compensation committee.

Promoting Say on Sustainability Pay

With the advantages that Say on Sustainability Pay may have over both shareholder resolutions and directorial “vote no” campaigns, it is curious that low Say on Pay votes generally have little or no connection to sustainability concerns. Analysing the 2023 proxy season, Semler Brossy lists as “likely causes for votes under 50%,” pay and performance relation; problematic pay practices; rigor of performance goals; shareholder outreach and disclosure; non-performance-based equity; and special awards/mega-grants, but nothing about sustainability. A recent study notes that “investor efforts focus mostly on the level of pay; investors do not at present demand linking executive pay with environmental or social targets on a broader scale…” Perhaps greater familiarity with Say on Pay will cause investors to expend more effort to advance corporate sustainability with this tactic. Exxon, for example, could not exclude from its proxy statement a Say on Pay vote campaign to influence the company to tie executive compensation to greenhouse gas emissions reduction.

Bebchuk and Tallarita hold out dim hope for a rigorous sustainability-linked pay regime: “Could one envision a different form of ESG-based compensation that would address these structural problems and create effective stakeholder-oriented incentives for corporate leaders? … In our view, this would require significant initiative and pressure from shareholders, as the compensation industry does not have clear incentives to make the substantial effort to push for effective constraints on executive pay, and corporate leaders, without shareholder pressure, do not have incentives to introduce hard-to-achieve, non-discretionary goals that might reduce their payoffs.” Investors, it is time to pick up the gauntlet.


1See also Jill E. Fisch et al., “Is Say on Pay All About Pay? The Impact of Firm Performance” (2018). All Faculty Scholarship. 1931., accessed 9.2.24(go back)

2See also “2017 Proxy Season: Say-on-Pay Frequency Post-Mortem,”, accessed 9.2.24(go back)

3See also Meera Behera, “TWO ESSAYS ON SAY-ON-PAY,”, accessed 9.2.24(go back)

4See also M. E. Badgett et al., “Director reputational penalties when shareholders disapprove of executive compensation,” Journal of Financial Research 45 (2022):759–795., accessed 9.2.24(go back)

5See also Reena Aggarwal et al., “The power of shareholder votes: Evidence from uncontested director elections,” Journal of Financial Economics, Volume 133, Issue 1 (2019):134-153, Accessed 9.2.24; Roni Michaely et al., “Voting Rationales,” (July 26, 2023). European Corporate Governance Institute – Finance Working Paper No. 928/2023, Available at SSRN:, accessed 9.2.24(go back)

6See also Lucian A. Bebchuk and Roberto Tallarita, “The perils and questionable promise of ESG-based compensation.” J. Corp. L. 48 (2022): 37,; David I. Walker, “The Economic (In) Significance of Executive Pay ESG Incentives” (February 14, 2022). Boston Univ. School of Law Research Paper No. 2-2022, Available at SSRN:; O. Lenihan and N. M. Brennan, “Difficulty of Sustainability Performance Targets in CEO Bonus Plans,” Accounting, Finance & Governance Review (2023).; Roberto Barontini and Jennifer G. Hill, “Sustainability and Executive Compensation” (December 21, 2023). European Corporate Governance Institute – Law Working Paper No. 747/2023, Available at SSRN: All accessed 9.2.24(go back)

7See also David Walker, Id.(go back)