Say on pay carves out new
NIRI chair and Textron IRO Doug Wilburne
signs letter to shareholders calling on them to reject proxy adviser’s
With the advent of universal
say-on-pay votes this proxy season, a broader and more enhanced IR portfolio
may be emerging as companies directly communicate details of executive
compensation policy and philosophy as well as the numbers.
IROs and corporate secretaries have been super vigilant watching for
recommendations on their compensation report from proxy advisers ISS and
Glass Lewis. As a result, several high-profile disputes have emerged –
including at Disney, General Electric, Northern Trust, Textron and Tyco
International – where issuers have challenged negative recommendations from
proxy advisory services head-on, with beefed-up compensation discussion and
analysis (CD&A) documents or supplemental proxies.
In the case of Textron, that includes a letter from the vice president of
investor relations (and current NIRI chair) Doug Wilburne, sent directly to
shareholders urging them to ‘dismiss the Glass Lewis recommendation’ against
Textron’s executive compensation proposal, coming up for a vote at the
company’s annual meeting to be held on April 27.
Textron received a thumbs-up from ISS but a negative recommendation from
Glass Lewis, according to Wilburne, so he began calling investors ‘we
understood to be automatically following Glass Lewis recommendations’. The
letter was sent as a follow-up to those conversations, he adds.
Wilburne’s letter charges that Glass Lewis’ recommendation ‘does not
appropriately reflect the substantial accomplishments being made by Textron
and its new management team, and… its analysis contains several quantitative
The letter details operational changes made after the new CEO and CFO were
installed in mid-2009, and points out the ‘600 percent-plus recovery in our
stock price from our low point in March 2009 and the fact that there are 12
‘buy’ ratings among the 17 sell-side analysts who actively cover Textron.’
Wilburne’s letter also lays out a common complaint that many proxy advisers
overstate actual compensation. In Textron’s case, Wilburne tells
shareholders that Glass Lewis’ valuation methodology is flawed, in part,
because it ‘assumes that ‘grant date fair value’ is an appropriate measure
of compensation actually paid.’
He points out that performance share units awarded to Textron executives
paid out only 2.9 percent of their target value during the 2008 to 2010
cycle, because Textron’s actual results were ‘well below performance
Wilburne says the letter came under his signature rather than the corporate
secretary’s because he has the ongoing relationship with Textron
shareholders. Even though the portfolio managers he deals with are not
always charged with voting the proxies, they can be ‘a window into the firm’
to reach the governance department within the institution.
Because proxies are not voted by portfolio managers who are most familiar
with the company performance and who IROs typically deal with, the
institutional audience for executive compensation discussions can be
‘Companies have begun to realize that the readers of the proxy are not the
same as the readers of the 10K,’ observes Donna Anderson, corporate
governance analyst at T Rowe Price.
Anderson, who was a member of the CFA Institute’s CD&A working group that
issued guidelines last January for issuers, heads up the Baltimore-based
mutual fund giant’s global proxy voting, and she and her peers have been
watching the changes with great interest.
‘In the past, companies dived into compensation with very little context,’
Anderson says. ‘Now they’re starting out with a brief recap of the year, and
then saying, And here are the decisions we made about compensation.’
Gary Tygesson, a partner specializing in governance practice at
Minneapolis-based Dorsey & Whitney, says his firm has been busy this season
rewriting client CD&As. ‘The end game here is to drive companies to talk
more with their shareholders about compensation issues,’ Tygesson comments.
‘When companies do so on a regular basis – get feedback, find out what
investors’ hot buttons are – [the investors] will ultimately get involved in
Even if IROs are successful in broadening the compensation discussion,
Tygesson believes ISS will continue to hold sway over other proxy items,
such as stock plans. ‘It has a really tight grasp’ he notes. ‘Unless
somebody finds a way to push back or it becomes subject to regulation, its
influence is going to continue to grow. I don’t think ISS has hit its apex
© Copyright Cross Border Ltd. 1995–2011.