There was an article this morning on CCN announcing Aflac’s decision to let shareholders vote on executive compensation.  A board resolution was passed to give “shareholders the right to a non-binding vote on executive pay packages that will take effect in 2009.”
I veiw this step by Aflac’s executives as very savvy. Why bother leaving oneself exposed to shareholder outrage?  Exhibit A: Home Depot – even if they were totally justified in paying their outgoing CEO $210 M when he left – and I highly doubt they were - why would any board risk so offending their investors?Â
Regarding Aflac, I suppose Henry Manne would say “why allow the vote if the minority cannot control the vote? The vote is a wasted effort – a useless display of ‘stockholder democracy.'” My impression is that shareholders, at least on the margins, like to be heard – it cultivates their willingness to take the $10,000 they are holding for a new car in nine years or so and put it in the market.Â
Did Aflac’s board need to give their shareholders this voice? No. Can I see a downside? No. I suppose Larry Ribstein might argue that allowing this input skews the “agency cost” aspect of executive compensation by allowing an irrelevant third party (the stockholders) some input into the calculus of executive compensation. Perhaps my L&E brethren will argue that allowing this input will drive down executive compensation and dry up the market for qualified senior executives. I am not sure what Steve Bainbridge would say about this from his “director primacy” standpoint. My view is that it will encourage boards to think harder about how they are going to justify to their shareholders any given pay package, and it will force executives to be prepared to justify whatever pay package they suggest to their directors that they should receive. Neither of those things are bad things.