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Does Shareholder Activism Accomplish Anything?

Outrage over rising executive pay levels during the economic crisis of 2008 was the driving force behind the "Say on Pay" rule, a component of the 2010 Dodd-Frank Act that gave shareholders a nonbinding vote on executive pay.

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But some corporate governance experts argue that Say on Pay has had little if any impact on reining in what public companies decide to pay their leaders.

Indeed, in some cases, Say on Pay has had the opposite of its intended effect, according to some, allowing the boards of public companies to rubber-stamp inflated pay packages for top executives and then certify them by coaxing a high approval rating from large shareholders.

Meanwhile, activist investors can use high negative Say on Pay votes as de facto ratings that help them target companies ripe for change — easy prey for investors looking to stir shareholder dissent for their own financial gain.

(Read more: Who Are the Highest-Paid CEOs?)

The original intention of the Say on Pay rule was to provide shareholders with a tool to weigh in on the composition of pay packages offered to a company's management team. It was passed in Washington as resentment surged after some too-big-to-fail banks that received government bailout money paid large bonuses to executives. Lawmakers touted Say on Pay as a way to rein in extravagant pay practices that reward failure.

The reality has been far less dramatic. Instead, Say on Pay has been "used in a surgical way," said Fabrizio Ferri, an assistant professor at Columbia Business School who has studied the impact of say-on-pay votes in the U.K. "It has helped identify certain design issues within executive compensation packages."

Ferri said Say on Pay "is just a tool" that is "supposed to work as a threat" to management, especially when high executive pay is linked to poor company performance. The fear of humiliation certainly has encouraged corporate board member to tie more elements of executive compensation to performance, though those elements can vary wildly.

Still, said Ferri, Say on Pay "helps open up other conversations with the board and allows shareholders to interact with a company's directors." He admitted, however, that "things were headed in that direction anyway."

Unfortunately, experts say, most Say on Pay votes are filed by institutional shareholders and brokerage houses, which are more likely to support management, as well as a company's pay practices. By some estimates, less than 10 percent of individual, or retail, shareholders vote in proxy elections.

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In July, Moxy Vote, an online shareholder voting service designed to empower individual shareholders, shut down, citing the unwillingness of brokerages to pass along proxy votes from individuals, among other factors.

(Read More: What Happens When Shareholders Have Power?)

"In concept, Say on Pay sounds great," said Allan McCall, a co-founder and principal of Compensia, an executive compensation consultancy, currently researching corporate governance at the Stanford Graduate School of Business. "In reality, what we've seen is, since this vote was not demanded by shareholders, there's been this movement to outsource the decision-making."

Large shareholders typically hire proxy advisers such as Institutional Shareholder Services and Glass Lewis, which don't have a stake in the outcome, to formulate their votes on pay. "It's changing the calculus of what the right answer is," said McCall. He said in some cases, corporate boards vote against their better judgment to avoid the risk of a negative Say on Pay vote.

Whatever companies are doing to quell shareholder dissent, it's working. A recent report from the Conference Board revealed that of 1,856 companies that supplied detailed Say on Pay vote results through June 30, only 49 executive compensation plans (a slight increase from 41 in 2011) did not received a majority vote from shareholders. That group includes high-profile cases such as Citigroup, American Eagle Outfitters, and Pitney Bowes .

The research also revealed that very few companies receiving a negative Say on Pay vote in 2011 remained on the list in 2012, suggesting a systematic effort by companies to influence shareholders regarding their compensation plans prior to the vote.

Meanwhile, CEO pay continues to climb. Research done by USA Today and GMI Ratings in April found that the median pay of CEOs rose 2 percent in 2011 after soaring 27 percent in 2010.

These days, boards "only consider Say on Pay in terms of compliance," said Gary Lutin, chairman of the Shareholder Forum, a host of educational programs designed to inform investors. "Say on Pay was a misguided approach because it turns too much power over to the consultants."

While Lutin is skeptical that any governmental regulation could change the dynamic of escalating executive pay, he sees a silver lining in Say on Pay for individual shareholders.

"Investors can look at positive Say on Pay ratings as a vote of confidence from professional fund managers," said Lutin. He argued that small investors can use this "presumably well-informed vote of confidence in picking stocks for investment."