January 29, 2009
Intel Agrees to Shareowner Vote on Executive Compensation
by Robert Kropp
Endorsement adds another corporation to a growing number opting for engagement in a year when issue
commands public attention.
In response to a shareowner proposal, Intelís Board of Directors endorsed the implementation of an
Advisory Vote on Executive Compensation for its 2009 shareowner meeting.
sponsors of the resolution, led by Walden
Asset Management, a Boston investment management firm, then withdrew the resolution in order to
facilitate further engagement.
"We've been in contact with Intel on this issue for years
now, and this year we filed a shareowner resolution," said Tim Smith, Senior Vice President at
Walden. "The Board got back to us and said they had agreed to put the executive compensation
proposal into effect in 2009."
Chuck Mulloy, corporate spokesman for Intel, said, "In our
view, the proxy proposal on executive compensation is a reasonable thing to do. So we took the
suggestion and will go forward with the advisory vote. There's no good reason to wait for
Congressional legislation to have this kind of dialogue on such an important issue."
Congress is likely to pass legislation to mandate annual non-binding shareowner votes on
executive compensation, and according to Smith, the SEC may promulgate rules on compensation
without waiting for legislation. In her testimony before the Senate Banking Committee, Mary
Schapiro, the new SEC chair, declared her support for shareowner votes on executive compensation.
"There certainly is more openness in boardrooms regarding this issue, for a number of
reasons. But the floodgates have not yet opened. Lots of companies are fighting back, rather
vigorously," Smith said. "However, there is more engagement on this issue this year than ever
The Troubled Assets Relief Program (TARP) require recipients of its funds to
comply with compensation guidelines that include prohibitions on unnecessarily risky incentives and
golden parachute payments, the elimination of tax deductions for salary over $500,000, and the
return of bonus and incentive pay based on materially inaccurate information.
advocates with stakes in the financial companies benefiting from TARP have introduced proposals
that contend that TARP guidelines do not go far enough. Other advocates want companies not covered
by TARP to adopt its guidelines for executive compensation.
Anticipating that the economic
crisis has focused investor and regulatory attention on executive compensation, RiskMetrics Group, a provider of risk management and
corporate governance services, devoted much of its 2009 proxy voting updates to the issue. Its
policy guidelines on executive compensation have been expanded to align with the provisions of the
US Treasuryís rules under TARP.
Calling RiskMetrics an influential adviser on proxy voting
for institutional investors, the Harvard Law School Corporate Governance Blog
advised corporate management to reassess their compensation policies in advance of the 2009 proxy
Shareowner advocates have submitted executive compensation resolutions at about
100 corporations in 2009.
Federation of State, County and Municipal Employees (AFSCME), an institutional shareowner with
more than $850 million in assets, has submitted 36 shareholder proxy proposals in 2009, many of
which seek advisory shareowner votes on executive compensation.
John Keenan, strategic
analyst for corporate governance and investment policy at AFSCME, told SocialFunds.com,
"Ingersoll-Rand has agreed to a shareholder advisory vote relating to executive compensation in
2009. In addition, we have proposed new initiatives relating to bonus banking, holding equity
shares, and golden coffins."
As an example of the practice of bonus banking targeted by
some shareowner proposals, Keenan pointed to the case of Stan O'Neal, former CEO of Merrill Lynch.
Fired after the Wall Street firm took an $8.4 billion write-down of securities backed by subprime
mortgages, O'Neal walked away with a $250 million bonus.
In support of the shareowner
proposal to require departing executives to retain their equity holdings for at least two years,
Keenan used the example of Angelo Mozilo of Countrywide, who faced investigations by the SEC and
federal prosecutors into his exercises of stock options that allowed him to sell $130.6 million
dollars worth of stock as Countrywide's fortunes worsened and it laid off 12,000 workers.
The "golden coffin" payout to executives, in which severance packages, vested shares, salaries,
bonuses, and pensions continue to be paid even after they die, represents the ultimate disconnect
between executive pay and performance. The Amalgamated Bank, the only fully union-owned US bank
still in operation, submitted a shareowner proposal urging The Shaw Group to seek shareowner
approval for executive agreements that award unearned salary, bonuses, and other compensation to
senior executives upon their death.
Upon the death of Chair and CEO J.M. Bernhard, The
Shaw Group would pay his estate a lump sum cash payment comprised of unearned salary, incentive
bonus, and full vesting of outstanding equity awards valued at over $20 million. In addition,
Bernhard would receive a retention payment currently valued at approximately $18 million contingent
upon his agreement to not compete with the company for a period of two years after his death.
The Amalgamated Bank's proposal on "golden coffin" payouts passed with 67% of shareowners'
The record number of shareowner proposals filed in 2009 suggests that support for
limits on executive compensation is growing in influential sectors of society. As Congress
contemplates legislation, the SEC prepares to reclaim its mandate to protect investors, and the
Obama administration indicates its support for the issue, it is likely that more corporations will
follow Intel's lead and engage with shareowner advocates on the issue.
The floodgates may
not have opened yet, as Tim Smith of Walden was quick to point out. That a company as high-profile
as Apple continues to oppose AFSCME's proposal on executive compensation, even after the proposal
won a majority of votes at the company's 2008 annual shareowner meeting, indicates that work
remains to be done before executive compensation is aligned with social and fiscal reality. But
2009 appears to be the year in which an issue of importance to socially responsible investors for
years will finally gain new levels of success.