Aflac Shareholders Approve First Vote on CEO Pay

For the first time ever, shareholders at a publicly traded company had a "say on pay." 

Aflac investors on Monday made history when they voted to approve the executive pay plan designed by the board of directors.

The company's performance has been good and the board controls 20 percent of the vote, so approval was expected.

But what if more firms adopt say on pay? Critics maintain it's a waste while supporters — like the non-profit money manager TIAA-CREF — argue say on pay is good for shareholders and U.S. companies.

"I think it will build trust in U.S. companies and in coporate America. It will increase accountability and I think all types of sharehoilders including international shareholder who will be more willing to invest their capital in US comapnies" said Hye-Won Choi, senior vice president and head of corporate governance for TIAA-Cref.

Here's how it worked: Aflac investors voted on a compensation plan outlined by the board in the company's proxy. The plan doesn't give a final number, just the elements used to determine the top executives' pay for 2008.

If shareholders had rejected it, the board would have asked institutional shareholders who opposed it why they did. Once the board got the big investors' feedback, it would have made changes to the plan.

Aflac volunteered to give investors this advisory vote, a vote that's been championed by activist shareholders who see it a tool to control excessive executive pay.

The two Democratic presidential hopefuls,  Senators Clinton and Obama, agree, saying they will make these votes law. Critics counter the vote is useless because its non- binding so the boards can ignore it and pay the CEO what they want.

Still  David Lewin, Neil H. Jacoby Professor of Management, Human Resources & Organizational Behavior at UCLA's Anderson School of Managemant replied in an email, the votes would likely impact, or cut into the hefty severence and retirement benefits for CEOs. It may also give boards a better way to hold CEOs accountable for their performance, Because pay would increasingly be linked to it.

Not all shareholders are convinced a say on pay is necessary. Investors at only two firms — Apple and Lexmark —  have voted to adopt proposals giving them a "say on pay" so far this proxy season.

© 2008 CNBC.com