Say on Frequency

A say on frequency vote is a shareholder advisory referendum on how often the company should hold say-on-pay votes—typically framed as annually, biennially (every two years), or triennially (every three years). Unlike say-on-pay itself, which judges the company’s compensation philosophy, say-on-frequency lets shareholders decide the interval of accountability itself.

The origin: Dodd-Frank and the right to vote

The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in 2010 after the financial crisis, mandated that all public companies hold a say-on-pay vote—a non-binding shareholder referendum on executive compensation—at least once every three years. But Dodd-Frank went further: it also required companies to hold a vote on the frequency of say-on-pay votes themselves. This second layer—say-on-frequency—was novel. It gave shareholders not just a voice on whether CEO compensation was excessive, but also the power to decide how often they would get to voice that opinion. A company that wanted to move say-on-pay votes to once every three years (to reduce balloting and save administrative costs) had to convince shareholders that less frequent votes were acceptable. Most did not.

Why the frequency matters

The interval between say-on-pay votes changes the incentive structure for boards and compensation committees. Annual votes create yearly accountability—if shareholders reject the compensation plan, the board must explain itself and propose changes within months. Three-year intervals let a company’s compensation program run longer before facing shareholder judgment. A company might implement a multi-year equity grant that shareholders find objectionable, lock in executive salaries that exceed market norms, or begin a problematic pay-for-performance structure, then argue that the next scheduled say-on-pay vote is two years away so patience is required. Advocates for annual votes argue that annual scrutiny prevents such drift; advocates for longer intervals argue that annual votes distract the compensation committee with short-term politics rather than long-term talent strategy.

The ballot and the choice

When a say-on-frequency vote appears on the proxy ballot, shareholders typically choose from three options: every year, every two years, or every three years. A shareholder votes for one of these, and the company tallies the results. If the majority of shares voted favour annual votes, the board is expected to hold say-on-pay votes annually, even if the board would prefer less frequent voting. The vote is advisory—legally, the board can ignore it—but ignoring a majority-shareholder preference on something as visible as compensation voting frequency would invite activist attention and proxy contests.

In practice, the vast majority of say-on-frequency votes result in a preference for annual say-on-pay votes. Shareholders believe that annual accountability is the baseline for responsible governance. Companies that have tried to campaign for two-year or three-year intervals have generally failed, facing opposition from major index funds and governance activists who view less-frequent voting as a sign of arrogance or something to hide.

The six-year rule

Say-on-frequency votes are not held every year; they occur once every six years (or within six years of the previous say-on-frequency vote). This prevents the ballot from becoming a circus of meta-votes about voting itself. A shareholder votes on frequency once, the company operates under that decision for six years, and then shareholders revisit the question. In the interim, say-on-pay votes (the substance) occur at whatever interval the frequency vote established. A company with a majority shareholder preference for annual say-on-pay votes will hold those votes yearly, and will not face another say-on-frequency vote for six years.

How boards respond

Boards take say-on-frequency results seriously, or at least they present that public face. If shareholders vote for annual say-on-pay votes, the compensation committee begins preparing for an annual cycle: a clear narrative about pay philosophy, data on competitive benchmarking, and justification for equity grants or bonus structures. The committee also knows it will face annual shareholder feedback, so it cannot ignore a prior year’s criticism. A board that promised to address “excessive perquisites” or “misaligned incentive plans” in last year’s say-on-pay vote will implement those changes, or explain why it did not.

Occasionally, a board will argue that shareholder feedback was split—perhaps 45 per cent voted for annual, 35 per cent for biennial, and 20 per cent for triennial—and claim ambiguity. This is spin. Plurality or majority support for one interval should govern, and boards that try to read a 45 per cent vote as permission to ignore the plurality choice will draw activist attention.

The strategic angle

Some companies view say-on-frequency strategically: a company with a new, aggressive equity compensation plan that management fears might trigger shareholder objections might prefer a three-year say-on-pay interval, hoping that by year three the awards will have proven their worth and earned forgiveness. Conversely, a company with strong pay practices and confidence in shareholder support might campaign for annual votes as a sign of confidence and transparency. Activists often use say-on-frequency as a proxy measure of board defensiveness: a company that resists annual say-on-pay votes, even indirectly, signals that it has something to hide.

The minimal burden

One argument in favor of less-frequent say-on-pay votes is administrative burden. Preparing a say-on-pay vote—researching peer company compensation data, crafting the narrative, drafting the proxy disclosure, managing shareholder outreach—takes time and cost money. A company could, theoretically, save overhead by voting every two or three years instead of annually. But the cost is modest relative to the company’s market value and the importance of the issue, and most institutional shareholders view the argument as penny-pinching. The real cost to the board is not administrative; it is the need to defend compensation decisions to a critical shareholder base once a year. That is a feature of accountability, not a bug.

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