Still, corporate boards would be wise to listen to frustrated shareholders when executive compensation becomes too generous. "Say on pay" votes may not be binding under Dodd-Frank, but they can serve as fodder for litigation. According to the Journal, shareholders at a handful of companies whose votes failed, including Jacobs Engineering Group (JEC) and Umpqua Holdings (UMPQ), sued their boards of directors. In those suits, shareholders alleged that the boards' rejection of their votes amounted to a breach of fiduciary duty.
Boards would also be wise consider the court of public opinion. The Internet gives consumers unprecedented access to information about CEO compensation. There seems to be little evidence thus far that consumers refuse to buy from corporations that overpay their CEOs, but if this issue catches viral fire and the economic slump continues, that could change. At least until the economy improves, CEOs and their boards might be smart to recognize that when it comes to executive compensation, a little discretion might be very good for business.