What Is a Ballot?

A ballot is a document used by a shareholder to exercise their voting rights. The ballot is typically submitting by shareholders (electronically or by mail) ahead of their company’s annual general meeting (AGM).

Shareholders may also use ballots to vote on important matters arising during the year, such as whether to accept an offer by an outside party who wishes to purchase the company.

Key Takeaways

  • The ballot is the document used by shareholders to exercise their vote.
  • Traditionally, ballots were physical documents. Today, electronic ballots are also used.
  • Ballots are mainly submitted before or during the company’s annual meeting. However, ballots will also be distributed if special decisions need to be made throughout the year.
  • Examples of votes that might appear on a ballot include routine matters as well as significant choices such as whether to change the management team or approve the sale of the company.

How Ballots Work

Although electronic ballots have become more common in recent years, shareholders are also free to submit their ballots in person at the annual meeting. These meetings are required by law and are open for all shareholders to attend.

Not all shareholders will receive a ballot. For some, such as those who own shares through mutual funds, exchange-traded funds (ETFs), or other pooled investment vehicles, the ballots may be submitted by the manager of the fund on behalf of its shareholders. In these situations, the investment manager will almost always vote in favor of the recommendations put forward by the company’s management.

Every shareholder has a right to vote on matters relating to the company they own. At least once a year, public companies must prepare a proxy statement called SEC Form DEF 14A. This statement specifies what items will be put up for vote by shareholders.

Some of the items placed on the ballot are of a routine nature, such as approval of the company’s audit fees for that year. Other matters, such as the re-election of existing members of the Board of Directors or the request to make changes to the Board, also appear. At times, these votes can become quite contentious, with management or groups of shareholders advocating that shareholders vote in a particular manner.

Real World Example of Ballots

One area where shareholders have expressed disagreement with management in recent years is in regard to executive compensation. This ballot item is a non-binding “say-on-pay” vote that sometimes is used by shareholders to express their displeasure at the amounts the Named Executive Officers (NEOs) are paid in cash, equity, and other non-cash compensation.

Although shareholders generally vote in favor of management’s recommendations, some notable exceptions do occur. For example, in 2015 a staggering 85% of Nuance Communications (NUAN) shareholders voted against their management’s proposed compensation package for the company’s CEO.

Technically, the power of shareholders is paramount in any corporation. Collectively, they can hire or fire the CEO, decide upon the Board of Directors and executive compensation, and even call for the sale or liquidation of the company. In practice however, shareholders are mostly passive, delegating decision-making to the management team and Board of Directors.