Say on Pay: Frequency, 70% Threshold, and Golden Parachutes

A Say on Pay vote is an advisory shareholder vote, required by federal securities law, on whether investors approve of how a public company pays its top executives. Congress created the right in 2010 through Section 951 of the Dodd-Frank Act, which added Section 14A to the Securities Exchange Act. The vote does not force the company to change anything about its pay packages. It gives shareholders a formal channel to signal when they believe executive compensation has gone off the rails, and it obligates the board to answer publicly when a large share of investors vote no.¹

Which Companies Have to Hold the Vote

Nearly every publicly traded company in the United States must put Say on Pay on the ballot. The SEC rule applies to any company that files proxy materials requiring executive compensation disclosure.²

Two carve-outs matter. Emerging Growth Companies are fully exempt for as long as they hold that status, which the JOBS Act of 2012 allows for up to five years after an IPO. A company loses EGC status sooner if it crosses $1 billion in annual revenue, reaches $700 million in public float, or issues $1 billion in non-convertible debt within three years.³

Smaller Reporting Companies, meaning those with less than $75 million in public float, are not exempt. They got a delayed start (2013 rather than 2011) and face lighter disclosure obligations, including no requirement to produce the full Compensation Discussion and Analysis narrative.²

What Shareholders Are Actually Voting On

Say on Pay appears as a separate resolution on the proxy card that goes out before the annual meeting. Shareholders approve or disapprove the overall compensation of the company’s Named Executive Officers, which usually means the CEO, the CFO, and the three other highest-paid executives.¹ The resolution covers the compensation program as a whole, not individual salary lines or bonus figures.

The result is purely advisory. The statute is explicit: the vote does not override any board decision, does not create new fiduciary duties for directors, and does not restrict shareholders from submitting their own compensation-related proposals in the future.¹ The board retains full authority to set pay.

Passage rates are high. In 2025, average support for Say on Pay resolutions was roughly 90% at both S&P 500 and Russell 3000 companies, and fewer than 2% of resolutions actually failed. Companies pass the resolution by whatever voting standard their bylaws require, which for most is a simple majority of votes cast.

What Shareholders See Before They Vote

The vote is meant to be informed, and SEC rules require detailed compensation disclosure in the proxy. For larger filers, the centerpiece is the Compensation Discussion and Analysis, a narrative section that explains why the compensation committee made the pay decisions it did. The CD&A must address the objectives of the pay program, what each element of compensation is designed to reward, and how the committee arrived at specific amounts.⁴

Alongside the narrative, the proxy carries a Summary Compensation Table showing each named executive’s total pay broken into salary, bonus, stock awards, option awards, and other components. Sophisticated investors and proxy advisors read the disclosures closely, and weak or vague disclosure is itself a reason some shareholders vote no.

How Often the Vote Happens

Shareholders also get a separate advisory vote on how often Say on Pay should occur, choosing among every one, two, or three years. This frequency vote must appear on the proxy at least once every six years, and it is likewise non-binding.¹⁵

In practice, almost all major companies vote annually. Annual voting is the default expectation among institutional investors and proxy advisors, and a board that departs from what shareholders requested tends to generate its own backlash.

What Happens If the Vote Fails or Gets Weak Support

When a Say on Pay resolution fails, or draws unexpectedly low support, the consequences are reputational and regulatory rather than legally binding. The board does not have to change a dollar of executive pay. But ignoring the result is not really an option, because SEC rules require the company to address it in writing.

The next proxy statement’s CD&A must disclose whether and how the board considered the results of the most recent Say on Pay vote in making compensation decisions. If the board made changes in response, the disclosure must explain what changed and why. If the board concluded no changes were warranted, the disclosure must explain that reasoning too.⁴ Boilerplate about “considering shareholder feedback” does not satisfy careful readers.

Beyond the required disclosure, most boards engage directly with their largest shareholders after a poor result. Compensation committee members typically reach out to major institutional investors and proxy advisors to identify the specific concerns behind the negative votes, which often center on perceived disconnects between pay and performance, problematic practices like outsized severance, or too little use of performance-based compensation.

If the board fails to respond convincingly, the pressure escalates. Shareholders who felt ignored on pay may withhold support from compensation committee members at the next election. Repeated negative results paired with unresponsive disclosure is one of the clearest paths to directors losing their seats.

The 70% Threshold and Proxy Advisor Influence

Two firms dominate the proxy advisory landscape: Institutional Shareholder Services (ISS) and Glass Lewis. Their recommendations carry weight because large institutional investors such as mutual funds, pension funds, and index funds often follow them, or heavily weight them, when voting across hundreds or thousands of portfolio companies.

ISS evaluates Say on Pay proposals primarily through a quantitative pay-for-performance analysis. It compares CEO compensation against total shareholder return over multiple time horizons, in both absolute and peer-relative terms. When the numbers suggest a significant disconnect, ISS moves to a deeper qualitative review, and if that review confirms the concern, ISS recommends a vote against.

This is where the commonly cited 70% figure comes from. It is not a legal standard. ISS policy treats any company receiving less than 70% support on its Say on Pay vote as a candidate for heightened scrutiny the next year, at which point ISS evaluates how the board responded. A weak response often produces a negative recommendation, which can push support down further. The 70% line has become a de facto benchmark across the market even though no statute or regulation mentions it.

Glass Lewis applies similar but distinct criteria and occasionally reaches a different conclusion than ISS on the same company. A negative recommendation from both firms almost guarantees a failed vote.

The Separate Vote on Golden Parachutes

Dodd-Frank created a distinct advisory vote for golden parachute compensation, meaning the payouts executives receive when the company is acquired or undergoes a similar transaction. This vote is not part of the annual Say on Pay cycle. It arises only when shareholders are asked to approve a specific deal.¹

When a merger or acquisition goes to a shareholder vote, the proxy must disclose all compensation arrangements with named executives that are triggered by or connected to the transaction, including severance payments, accelerated equity vesting, and other change-in-control benefits. The disclosure must appear in both narrative and tabular form.⁵

Shareholders then vote separately on whether to approve those arrangements. The vote is advisory: a failed vote does not block the transaction or void the compensation agreements. One exception matters. If the golden parachute arrangements were already disclosed and covered by a prior Say on Pay vote, no separate golden parachute vote is required for that transaction.⁵

Can a Failed Say on Pay Vote Support a Lawsuit

Some shareholders have tried to use failed Say on Pay votes as the foundation for derivative lawsuits alleging waste of corporate assets or breach of fiduciary duty. Courts have generally been unreceptive. Congress explicitly stated that the vote does not create new fiduciary duties and does not override board decisions, and courts have therefore been reluctant to treat a failed vote as evidence that the board acted improperly.¹

The business judgment rule adds a second layer of protection. Compensation decisions made by an independent, informed board acting in good faith receive substantial judicial deference. To prevail, a plaintiff typically needs to show something more than misalignment between pay and performance: self-dealing, a conflict of interest, or compensation so disproportionate it amounts to corporate waste. A failed advisory vote by itself does not clear that bar in most courts. The real enforcement mechanism for Say on Pay remains the annual vote, the required disclosure that follows a weak result, and the pressure that proxy advisors bring to bear on future votes and director elections.

1
Office of the Law Revision Counsel. 15 USC 78n-1 – Shareholder Approval of Executive Compensation
2
eCFR. 17 CFR 240.14a-21
3
U.S. Securities and Exchange Commission. Emerging Growth Companies
4
eCFR. 17 CFR 229.402 – Executive Compensation
5
U.S. Securities and Exchange Commission. Say-on-Pay Votes