Timothy Smith, August 18, 2008 comments

Timothy Smith

August 18, 2008

I appreciate the opportunity to share a few comments on the “Reconsidering Say on Pay” papers and proposals .

As a person who has been involved both as a shareowner proponent in filing this resolution with a number of companies and as one of the conveners of the Working Group on the Advisory Vote on Executive Compensation which sponsored 2 well attended Roundtables on the subject and prompted the publication of a number of background papers and articles I have appreciated the various perspectives reflected in the website.

When we pulled together a group of approximately a dozen companies and a dozen investor representatives for a dialogue that has lasted close to 2 years we did so on the basis of mutual; respect and understanding each other’s various interests in delving into the details of the Advisory Vote concept and its applicability for the U.S. market. We pulled together 2 Roundtables that had panels addressing the various issues companies and investors alike faced regarding what became known as “ Say on Pay.”

One of the expectations of a Working Group of this sort was the importance of mutual respect and ability to listen to each others positions. Thus I was surprised to read the description on the website that the Advisory Vote had been “ transformed into a confrontational activist demand for legislatively imposed Say on Pay” and the claim that “ further suggests that many of the governance professional who advocate compulsory Advisory Voting view it as a means of increasing their influence.” As we all know in these times of political campaigns it is easy to build up a false characterization of one of the parties in an election then knock down that description. Further the description talked about the “ activist client network” of Risk Metrics. So the writer of the website description from Sibson Consulting has decided that it is acceptable to attack the 75 proponents and the motives of the many investors whose votes generally result in tallies of 40-49% ( and in ten cases a majority vote ) trying to minimize them and the case they make for this change in governance philosophy. Implicitly the comments also attack the dozen or so companies like AFLAC who have embraced the concept and the companies who find it a useful tool in the U.K. and other European countries. That doesn’t seem to be the spirit that the Forum stands for but is more like the Chamber of Commerce attack mode.

I look forward to posting comments on the papers being presented but would also appeal to Sibson Consulting to be forthright and honest about their own perspective on Say on Pay and if they wish to run a fair and balanced discussion on line or have a hidden agenda to torpedo Say on Pay as quickly as they can.

Timothy Smith

Senior Vice President

Environment, Social and Governance Group

Walden Asset Management

33rd floor, One Beacon St.,

Boston, MA. 02108

617-726-7155

tsmith@bostontrust.com

www.waldenassetmgmt.com

Supplemental Comments

Timothy Smith

August 18, 2008

Should investors in the United States have additional tools with which to communicate to the Boards and managements of companies in which they invest what their reactions are to the CD&A, and the compensation packages of top executives? As we all know it is not an unknown concept for investors to be able to weigh in on parts of executive comp at present since we already have opportunities to vote on resolutions presenting options packages, a system that seems to work well and has not prompted undue alarm by companies. The new reform requesting an Advisory Vote is a logical next step.

In fact investors already spend time and energy assessing options packages demonstrating their acumen on that vote. Don’t they also have the wisdom to assess the adequacy of a CD& A or the company offered percs or the ways in which performance is adequately linked to pay and vote Yes, No or Abstain on a proxy ? And shouldn’t a management and Board attentive to their shareowners concerns have the ability to learn from that input and adjust their pay package if changes are warranted.

This year Aflac presented the resolution to investors with 93% of the votes in favor, indicating investor support for a reasonable compensation package. Daniel Amos, Chairman and CEO - AFLAC, led his company to adopt an annual shareowner advisory vote mechanism. Mr.. Amos said, "An advisory vote on our compensation report is a helpful avenue for our shareholders to provide feedback on our (long-standing) pay-for-performance compensation philosophy and pay package." NIRI IR Advisor (April 30, 2008).

Surely a company that has a clearly explained compensation philosophy and metrics, a reasonable link of pay for performance, and communicates effectively to investors will find a management sponsored Advisory Vote a helpful tool.

Investors are increasingly concerned about mushrooming executive compensation. In 2008, shareholders filed close to 100 “Say on Pay” resolutions. Votes on these resolutions have averaged 43% in favor, with ten votes over 50%., demonstrating strong shareholder support for this reform in both 2007 and 2008.

The resolution allows shareholders to express their opinion about senior executive compensation by establishing an annual referendum process. The results of such a vote would provide the board and management with useful information about whether shareholders view the company’s senior executive compensation are perceived to be in shareholders’ best interest.

Proxy voting service RiskMetrics Group, recommends votes in favor, noting: “RiskMetrics encourages companies to allow shareholders to express their opinions of executive compensation practices by establishing an annual referendum process. An advisory vote on executive compensation is another step forward in enhancing board accountability.” In fact Risk Metrics, a public company, put this this into effect itself polling its investors on its compensation philosophy breaking the question into 3 sections to refine the collection of data.

Eight other companies have also agreed to an Advisory Vote, including Verizon, Blockbuster, HR Block, Tech Data and TIAA-CREF, the world’s largest pension fund.

Existing U.S. Securities and Exchange Commission rules and stock exchange listing standards do not provide shareholders with sufficient mechanisms for providing input to boards on senior executive compensation. In contrast, in the United Kingdom, public companies allow shareholders to cast a vote on the “directors’ remuneration report,” which discloses executive compensation. Such a vote isn’t binding, but gives shareholders a clear voice that helps provide input on senior executive compensation.

The Advisory Vote on executive pay is much less threatening than many companies or compensation consultants are arguing. For most companies it will be as routine as voting on the Ratification of Auditors.