Shareholders get their say

Most public companies have added “say-on-pay’’ questions to the agendas of their annual meetings this year, a new requirement under last year’s Dodd-Frank Wall Street Reform and Consumer Protection Act.

Executives already hated the idea behind annual meetings — answering unscripted questions and explaining themselves in public to any Joe or Jane who happened to own a few shares. Now they have to endure a public approval poll for their paycheck.

Say on pay is really more like a poll than a vote. It is a nonbinding proxy question — thumbs up or down on the compensation of top executives — and boards are not required to take action based on the results. But that doesn’t mean public companies and the people who run them are taking it lightly.

A few companies that came in for criticism over executive compensation altered their pay packages. Some fought back against critics, either stepping up their defense of pay practices or attacking the people challenging their compensation standards. Many have been quietly lobbying big institutional investors to support management’s position on say on pay.

Institutional Shareholder Services Inc., a big proxy advisory firm, has become a key player in the compensation voting. ISS has reviewed 1,706 say-on-pay proxy questions for this year’s meetings and recommended stockholders approve of the companies’ executive compensation in 1,499 of those cases. That leaves 207 “no’’ vote recommendations, a rejection rate of about 12 percent.

Two of ISS’s negative recommendations involve local companies — clothing retailer Talbots Inc. of Hingham and Metabolix Inc., a Cambridge bioscience business. Both companies host their annual meetings on May 19.

An ISS analysis found a “pay for performance disconnect’’ at Talbots, especially when it came to the increased compensation for chief executive Trudy Sullivan as the company’s stock slumped last year. Glass Lewis, another proxy advisory firm, also recommended voting no on the Talbots say-on-pay question.

Sullivan’s compensation doubled to $6.3 million last year, thanks mostly to a restricted stock award worth $3.6 million. Meanwhile, Talbots’ stock performance trailed that of industry peers by a wide margin over a one-year and three-year period, according to ISS. “The company’s lagging performance does not justify’’ Sullivan’s pay doubling.

Talbots was one of those companies that decided to fight back. In an updated proxy filed last week, the company offered a detailed defense of the way it pays top executives. Talbots said criticism of its compensation practices was “based on incomplete analysis and a ‘one-size-fits-all’ approach.’’

So far this year, only 15 companies have had their compensation policies rejected by shareholders. That short list includes familiar business names, including Hewlett-Packard Co., Stanley Black & Decker Inc., and Janus Capital Group.

But no votes are only one problem managers worry over. Companies like Johnson & Johnson and Pfizer Inc., which won approval of executive pay by thin margins, have to acknowledge the dissent. “A smart company and a smart board is going to pay just as much attention to a 40 percent no vote,’’ says Timothy Smith, a senior vice president at Walden Asset Management and a longtime shareholder activist.

So how often will the compensation question come up? Shareholders get their say on that as well this year. In the only multiple-choice proxy question I’ve ever seen, stockholders are being asked if they would like a say on pay annually, every other year, or every third year. That question is also a requirement of the Dodd-Frank legislation.

An overwhelming majority of stockholders have voted for an annual say on pay. Stockholders at nearly 82 percent of 537 companies that have held meetings this year were in favor of say-on-pay votes every year, according to ISS. Managers at 206 of those companies had recommended pay votes every three years, but shareholders disagreed in 129 cases. Overall, that’s a clear endorsement for annual pay votes.

Say on pay isn’t going to turn the corporate world upside down. But those votes are a step in the right direction and they can make a difference. In a few cases, they already have.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.