June 04, 2008
Executive Pay Weighs Heavy with Shareholders
by Anne Moore Odell
With more than 90 "say on pay" resolutions this year, shareholders continue to push for advisory
votes on executive compensation.
As most Americans see their paychecks stretched tighter by rising costs, the huge paychecks and
special perks given to the people running publicly traded companies are under closer scrutiny than
ever by shareholders. Shareholders are voting in growing numbers for an advisory vote on
compensation--a "say on pay"--this proxy season.
This year over 90 companies have
faced, or are going to face, shareholder resolutions on "say on pay." The resolutions were filed by
a broad coalition of 75 plus investors managing over $1 trillion in assets. Walden Asset Management, one of the lead filers of
these resolutions, reports that of the proposals that have faced voters this year, a majority have
received at least 40% approval with six proposals reaching over 50%.
"The advisory vote on
executive compensation would help insure that corporate boards, specifically the compensation
committees, do a better job at explaining to shareholders how executive pay is linked to
performance," said Brother Steven O'Neil, shareholder action coordinator for the Marianist Province of the United States.
the shareholder vote is advisory, the board would have a lot of explaining to do if they
implemented a pay plan that the majority of shareholders were against," explained O'Neil. The
Marianists were the primary filer on "say on pay" resolutions at Capital One and Oracle. They were
co-filers at Exxon-Mobil.
The 2008 proxy season has seen a 50% increase in the number of
"say on pay" resolutions from 2007, jumping from over 60 resolutions in 2007 to over 90 in 2008.
The first "say on pay" resolution was filed by the AFSCME Employees Pension Plan in 2006.
RiskMetrics Group reports in it
Midseason Review of the proxy season that executive pay vote proposals have averaged 43.1% support
over 35 meetings where preliminary or final results are known. This compares to 42.5% support of
these proposals in 2007.
State and city pension funds, religious investors, foundations,
and individuals are included in the groups filing "say on pay" resolutions. They include the
AFL-CIO, AFSCME, CalPERS, City of New York Pension Fund, the Marianists, Nathan Cummings
Foundation, Needmor Foundation, State of
Connecticut Pension Fund, John and Ray Chevedden, TIAA-CREF, the Unitarian Universalist
Association, The United Church of Christ Foundation, United Methodist General Board of Pensions and
Health Benefits, and Walden Asset Management.
"Under new SEC rules, companies have to
disclose the total compensation of their top officers," explained Tim Brennan, treasurer and vice
president of finance for the Unitarian Universalist
Association. "In the past, much of this information had been buried in the annual filings."
"Now, what can investors do with this information? The most effective and efficient way
for shareholders to communicate whether company management, their agents, are being fairly
compensated is to have a vote at the annual meeting. This is also a great way for boards to get a
reading on the judgment of the shareholders, whom they represent," Brennan continued.
Aflac became this first company to support an advisory vote on executive pay. Shareholders
overwhelming supported the issue, voting 93% for the measure.
"I think that the fear of
the proposals on the part of the companies is largely unfounded, at least for those with rigorous
and fair compensation systems," said Brennan. "Witness the vote at Aflac, the first company to
conduct such a vote. Management compensation received approval from over 90% of the shareholders.
That's a great vote of confidence for the company and the board."
Other companies that
have adopted policies regarding advisory votes on compensation include Blockbuster, Verizon,
RiskMetrics, and Par Pharmaceuticals.
As of the end of May, the 2008 "say on pay"
resolutions votes that received a majority, some of which are preliminary, include Apple Computer
(51%), Alaska Air (53%), Lexmark (60%), PG&E (52%), Motorola (54%), and South Financial Group
Other results on "say on pay" include Bank of New York Mellon, (46%), Bank of
America (45%), Citigroup (42%), Dresser Rand (46%), Dupont (45%), Edison International (47%),
Boeing (46%), Goldman Sachs (46%), IBM (43%), Johnson & Johnson (45%), Lockheed Martin (46%),
Occidental Petroleum (45%), Merck (48%), PepsiCo (44%), and Waddell & Reed Financial (49.5%).
RiskMetrics notes that as of May 23, no "say on pay" proposal has received less than 30%
O'Neil clarified the importance of the "say on pay" resolutions to the
Marianists: "The say-on-pay resolution fits our mission to insure shareholder rights are
maintained. They are the owners of the company and have a right and responsibility to see that the
company acts in a fair and just manner, not only produces a profitable bottom line."
Brennan explained why the UUA has worked on executive compensation issues, "These resolutions
reflect our commitment to economic justice and, specifically, to our guiding Second Principle: 'We
affirm and promote justice, equity and compassion in human relations.' Equity here being the key
term. Further, we believe that giving shareholders the right to a vote on executive compensation
embodies our Fifth Principle, 'The right of conscience and the use of the democratic process… in
society at large.' We believe that democratic principles should be applied to corporate
governance, not just the public sector."