March 09, 2010
More Than 60 Companies Voluntarily Adopt Annual Shareowner Votes on Executive Compensation
by Robert Kropp
Companies adopting say-on-pay include many in the financial industries, and all TARP recipients
mandated to do so last year; in the absence of legislation or regulations, activist shareowners
file more than 70 resolutions on the issue this year.
The adoption by companies of policies allowing annual shareowner votes on executive compensation,
or say-on-pay, has been a hotly contested issue, especially in recent years, as links between
excessive risk-taking by financial institutions and excessive executive compensation have been
decisively outlined by social investors and shareowner activists alike. That the Obama
administration made it a requirement of companies receiving funds through the Troubled Asset Relief
Program (TARP) to provide an annual shareowner vote on say-on-pay underscores the validity of those
links in the eyes of regulators.
A recent press release, issued
jointly by Walden Asset Management
and the American Federation of State, County and
Municipal Employees (AFSCME), illustrates further the mainstream acceptance of say-on-pay.
According to the release, “More than 50 companies have now voluntarily adopted giving their
shareholders an annual advisory vote on executive compensation.”
Timothy Smith, Senior
Vice President of the Environment, Social and Governance Group at Walden Asset Management, told
SocialFunds.com, “The number of companies that have adopted say-on-pay has grown since the
announcement, to more than 60.”
The companies that have voluntarily adopted say-on-pay
include many financial institutions, which have come under increasing scrutiny for their
compensation policies in the aftermath of the financial crisis, especially given the widespread
outrage expressed in response to reports that many TARP recipients intended to return to their
pre-crisis policies of awarding bonuses that many regard as outrageously high.
the pressure now on Wall Street for reasonable pay, adopting say-on-pay policies does not seem an
unreasonable request,” Smith said.
He continued, “Many of these financial companies had to
allow a vote last year, because they were TARP recipients, and simply agreed to continue it this
year. I don’t know of any TARP recipients that are not adopting say-on-pay resolutions this year.”
Noting in a January letter to
financial companies that “approximately 40 companies to date, have voluntarily adopted the advisory
vote on executive compensation,” Smith and the letter’s other signatories described shareowner
advisory votes on executive compensation as “a timely and needed corporate governance reform,”
specifically urging Bank of America, a TARP funds recipient, to adopt the measure. The recent press
release from Walden and AFSCME indicates that Bank of America has indeed voluntarily adopted an
annual advisory vote on executive compensation.
Regarding the increase in voluntary
adoption of the measure—in 2008, six companies adopted it, and in 2009 the number rose to 19—Smith
said, “I don’t want to overstate the impact of shareholder input. Everybody is watching this issue,
and companies that adopt are getting ahead of the curve.” But, he added, “Shareholder input and
pressure are very important for defining the issue for the company. Seventy-five resolutions were
filed last year, and most companies are doing it now because they’ve been asked to by
Smith said that of all the financial companies contacted about the issue,
every TARP recipient has agreed to shareowner advisory votes on executive compensation. The only
financial company currently opposing such a request is Waddell & Reed Financial, where average
total annual compensation for four of the five top executives increased by 25% in 2009, while the
company’s net income increased by only 9.7%. The shareowner resolution that Waddell & Reed is
opposing was filed by Boston Common
The resolution filed by Boston Common Asset Management quoted a 2009
report from the Conference Board Task
Force on Executive Compensation, which stated that “in order to restore trust in the ability of
boards to oversee executive compensation,” compensation programs which are “transparent,
understandable and effectively communicated to shareholders” should be adopted.
absence of legislation or regulations mandating a market wide rule,” the press release from Walden
stated, “The investor coalition announced the filing of additional Say on Pay shareholder proposals
at more than 70 US corporations for 2010 votes.” In 2009, the 75 resolutions gained more than 46%
support, with 24 majority votes.
The marked shift in the approach to shareowner
resolutions by the Securities and Exchange Commission under Obama appointee Mary Schapiro has
helped the cause of advocates for say-on-pay and other important corporate governance issues.
Unlike the SEC under the Bush administration, whose Division of Corporation Finance routinely
disallowed shareowner resolutions on the grounds of ordinary business exceptions, the SEC under
Schapiro has been consistent in its support for the interests of investors.
“There are a
few companies that are fighting vigorously against the right of shareholders to put the issue up
for proxy vote,” Smith said, “And they’ve gone to the SEC to try to get the resolution omitted. One
such company is EMC, the computer company, which is fighting a resolution filed by the Unitarians.”
“A bright side is we’re winning the challenges at the SEC,” Smith continued. “A number
have been ruled on and we’ve been successful in every case.”
Progress on the legislative
front is less clear at present. Legislative efforts to mandate say-on-pay passed the House of
Representatives last year, and Sen. Charles Schumer of New York introduced a Shareholder Bill of Rights Act for consideration by the Senate.
By now, however, many of the proposals in Schumer’s proposed legislation have been dropped by
the Senate Banking Committee in its deliberation on financial overhaul legislation. A letter sent to Sen. Christopher Dodd, Chairman of the Senate Committee on
Banking, Housing and Urban Development, urged the Committee to retain three essential components of
corporate governance in its draft legislation.
In the letter, Lisa Woll, CEO of the Social Investment Forum (SIF), urged the
Committee to support the authority of the SEC to go forward with proxy access, which would allow
shareowners to nominate directors. She also urged support for a majority voting standard for the
election of directors, as well as annual advisory votes on executive compensation.
challenge to adoption by the Senate of meaningful financial reform that will take into
consideration the rights of shareowners was highlighted by a remark made by Republican Sen. Judd
Gregg of New Hampshire, who described the shareowner provisions of the proposed legislations as
“classic socialist industrial policy, which seems to be the basic mindset of some of my colleagues
these days around here that don't believe in markets, capitalism, profit, or individual
However, as Smith told SocialFunds.com, “Shareholder votes on
say-on-pay are not going to go away as an issue.”