February 20, 2007
Aflac Shareholders Get Say on Executive Pay
by Anne Moore Odell
Aflac becomes the first major US company to offer shareholders a non-binding vote on executive
In response to a 2006 shareholder proposal, Aflac (AFL), a provider of supplemental health insurance, announced last
week that they are giving shareholders the opportunity to make their voices heard on top executive
pay. Aflac crafted an offer that will allow shareholders to cast a non-binding vote on executive
pay starting in its 2009 proxy.
Although the shareholder vote on executive pay
packages will be only an advisory vote, it creates an important pathway for shareholders to
communicate on the issue of executive compensation packages. Over forty companies are facing
shareholder resolutions on executive pay this 2007 proxy season as many shareholders look to
balance ballooning executive pay packages with companies’ earnings.
"Our shareholders, as
owners of the company, have the right to know how executive compensation works," said Aflac
Chairman and CEO Dan Amos. "The board's action is in keeping with Aflac's longstanding
pay-for-performance compensation policy and our commitment to transparency at all levels."
Boston Common Asset Management,
a socially responsible money manager, was the lead filer of the "Say on Pay" resolution. Aflac,
Boston Common and other shareholders worked to come to an agreement on the new corporate governance
policy, making Aflac the initial major US company to implement this strategy.
Common acknowledges that Aflac already had in place a rigorous process for evaluating executive
pay, involving a comparison of Aflac’s performance to a group of 16 other major insurance
companies. However, the issue for Boston Common was not that Aflac's executives were fairly
compensated, but that shareholders have a right to have a say on compensation.
management’s decision to become the first US company to agree to let shareholders vote on executive
compensation packages demonstrates Aflac’s leadership and commitment to its shareholders and the
important role active, vigilant investors have in improving corporate policy" said Dawn Wolfe,
Social Research Analyst at Boston Common.
Shareholders will vote on the top five positions
at Aflac. Compensation for these top five spots varies as each executive meets her or his
performance targets. If executives fail to meet their targets, they do not receive a portion of the
bonus, which dramatically impacts the total compensation.
It is too early to say how the
compensation committee will work with the shareholders’ votes to help determine pay, said Laura
Kane, 2nd VP of Corporate Communications at Aflac. "At this point, it will be an up or down vote on
compensation," she added.
Aflac president Amos noted, "We believe that providing an
opportunity for an advisory vote on our compensation report is a helpful avenue for our
shareholders to provide feedback on our pay-for-performance compensation philosophy and pay
While Aflac is the initial US company to reach this agreement, the federal
governments of the United Kingdom, Australia and the Netherlands require shareholder votes on
executive pay. Many companies and shareholders in these countries feel that since allowing
shareholders’ voices to be heard on executive pay, pay packages have better reflected companies’
Shareholder input on executive pay has not been a focus in the US until recently.
Part of the reason it has garnered more attention of late may be attributable to growing public
outrage over the widening gap between CEO and average worker pay. Wolfe told Socialfunds.com, "The
gap between CEO compensation and average worker pay has widened immensely over the last couple of
decades. CEO compensation was 45 times greater than that of the average worker in 1980, 96 times
greater in 1990, and 458 times greater in 2000."
The federal government is also looking
at this issue. In a recent press release, SEC Chairman Cox has called an advisory vote "the logical
next step" to empower shareholders and Rep. Barney Frank, new chairman of the Financial Services
Committee, introduced legislation in 2005 to allow shareholders to vote on pay packages.