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February 02, 2011
Investors Call for Annual Votes on Executive Compensation
    by Robert Kropp

A coalition of 39 institutional investors responds to SEC rules governing shareowner votes on executive compensation by urging companies to support annual, rather than triennial, votes.

Last week, the Securities and Exchange Commission (SEC) adopted rules governing the right of shareowners to regular nonbinding proxy votes on executive compensation. The new rules require public companies to provide shareowners with such a vote at least every three years, as well as a vote on the desired frequency of an executive compensation vote at least every six years.

On Monday, a coalition of 39 institutional investors with more than $830 billion in assets under management called on companies "to support an annual advisory vote on executive compensation in their spring proxy statements." The coalition is led by Walden Asset Management, the American Federation of State, County and Municipal Employees (AFSCME), and the Treasurer's Office of the State of Connecticut.

In a press release, the coalition set out a number of reasons why an annual vote on executive compensation is important. Since corporate governance best practice already includes annual shareowner votes on such matters as the election of boards of directors, it would not be burdensome for shareowners to vote every year—and would, in fact, be "central to proper shareholder oversight"—on decisions made yearly by board compensation committees.

Furthermore, less frequent votes on compensation would result in less accountability and transparency, and might well lead to more adversarial shareowner action.

An annual vote on executive compensation is already widespread standard practice in many countries, the coalition pointed out. And Institutional Shareholder Services (ISS), the influential proxy advisor, has "announced it will recommend that shareholders vote for the annual advisory votes," according to the release.

Timothy Smith, Senior Vice President of Walden Asset Management, stated, "Say on Pay votes have already stimulated re-thinking by Board Compensation Committees on various perks and controversial pay formulas. The discipline of an annual vote will encourage Boards to be more responsive and accountable on compensation."

"Unchecked and unapproved CEO pay directly contributed to the financial crisis," said Gerald McEntee, President of AFSCME. "Companies with problematic pay practices or a history of ignoring shareholders will be seeking fewer votes. That’s why shareowners need to vote for annual say on executive pay."

In the first proxy vote held following the SEC adoption of rules on the issue, shareowners at Monsanto overwhelmingly opposed management's recommendation for a triennial vote on executive compensation. More than 62% of Monsanto shareowners voted in favor of an annual vote.


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