The American Recovery and Reinvestment Act of 2009 (”ARRA”) and the associated guidance issued by the U.S. Department of the Treasury requires financial institutions that have sold preferred stock and issued a warrant to the U.S. Treasury Department under the Capital Purchase Program to permit a separate shareholder vote to approve the compensation of executive officers.

The Securities and Exchange Commission has also issued guidance that requires participants in the Capital Purchase Program to annually submit to their shareholders a proposal to approve the executive compensation arrangements as described in the Compensation Discussion and Analysis of an issuer’s proxy statement.

Besides companies that are statutorily required to provide shareholders an opportunity to vote on executive compensation practices, there are a few other companies that have initiated this practice voluntarily. InvesGuard did a quick exercise on the number of banking companies from the S&P 500 that presented an advisory vote on executive compensation (‘Say on Pay’ ) to their shareholders between May 12th 2009 and May 12th 2010.

Only 16 banks presented some matter or the other to their shareholders for a vote during this period. Out of these 16 companies, 12 companies actually presented a proposal for shareholders to approve a non binding vote on executive compensation. Shareholders from all 12 banks easily approved this vote. The most overwhelming percentage of votes for executive compensation were at M&T Bancorp where 97% of the total votes were ‘For’ this proposal. The lowest percentage of ‘For’ votes was at Wells Fargo (WFC) where only 72% of the total votes, approved the ‘say on pay’ proposal. This is not surprising considering that earlier this year, soon after exiting the TARP program, WFC announced a revamped, higher compensation structure for its senior management.

Out of these 12 banks, 5 have already exited the Capital Purchase Program and have continued to provide the ‘Say on Pay’ vote to their shareholders.

A similar exercise for Investment Brokerage, Asset Management, credit services and other related companies for the largest 3500 companies (by market cap, excluding closed-end funds) was conducted. In this case there were only 41 companies that presented some matter or the other to their shareholders for a vote between May 12th 2009 and May 12th 2010. Out of these 41 companies, only 8 companies presented the ‘say on pay’ vote to shareholders. Shareholders at 7 of these 8 companies passed the ‘say on pay’ vote. 60% of shareholder votes at Wadell and Reed Financial Inc were against a stockholder proposal requiring the board to accept a proposal that would seek an advisory vote of shareholders to ratify and approve executive compensation.

Providing shareholders the right to an advisory vote on executive compensation was expected to boost shareholder rights. But, looking at the dismal number of companies that are providing shareholders with this right to vote on executive compensation it seems highly unlikely that it is going to have any far reaching consequences.