Say-on-pay votes by shareholders are now quite common. Occasionally, shareholders' non-binding votes do not approve executive compensation. For example, in 2013, share holders of Barrick Gold Corp. rejected a large signing bonus to a new co-chairman (Theory in Practice 10.5). A second rejection followed in 2014 due to falling share price.

In 2009, shareholders of Royal Dutch Shell pic voted against the company's 2008 executive compensation report. The objection arose because of bonuses awarded to executives even though performance targets for the 2006-2008 period were not met.

In both of these examples, despite the vote being non-binding, real actions followed.

In 2015, the Barrick Gold co-chairman (now executive chairman) accepted a $10 million compensation reduction. In 2009, the chair of Shell's compensation committee indicated that he would resign and leave the company. Another member resigned from the compensation committee, and moved to the audit committee.

Required

a. What are the advantages and disadvantages to the company and its shareholders of giving shareholders a non-binding say on pay?

b . Should non-binding say on pay be strengthened by making it binding on the company? Explain.