Tomoeh Murakami Tse
Washington Post Staff Writer
Thursday, February 15, 2007; Page D01
Aflac said yesterday that it would become the first major U.S. company
to give shareholders an advisory vote on executive compensation packages,
bolstering investor groups that have vowed to push companies to change
their governance practices at annual shareholder meetings this spring.
Aflac, the world's largest seller of supplemental health insurance,
said it would allow shareholders a nonbinding vote on its corporate pay
practices beginning in 2009 -- the first year that the company's proxy
statement will contain the three years of compensation data required by
the Securities and Exchange Commission's new disclosure rules. Aflac made
its announcement after a proposal last year by one shareholder, Boston
Common Asset Management.
"They're an early adopter," said Richard Ferlauto, director of
investment policy at the American Federation of State, County and
Municipal Employees, which supports the so-called say-on-pay resolutions.
"We expect others will follow."
Such proposals are among the most controversial of the hundreds this
year by major shareholders, who are emboldened by public furor over
outsized executive compensation. Proponents say that even though the votes
would be nonbinding, they would pressure companies to change compensation
At least 50 companies will have votes on say-on-pay at shareholder
meetings, up from seven last year, according to Institutional Shareholder
Services, a proxy advisory firm in Rockville.
Other closely watched resolutions include a proposal to allow
shareholders to run opposing board candidates and another to tie executive
pay more directly to corporate performance. Many of the companies targeted
are in the hot seat over executives' salaries or the practice of
Home Depot, still smarting from controversy surrounding the lucrative
exit package given to its former chief executive, last week invited an
activist shareholder to join its board, helping to avert a potentially
nasty proxy fight. And dozens of prominent companies, including
Honeywell and Wells Fargo, have agreed to change how directors are
ISS said that since 2003, when investors began pushing for election by
a majority of shareholder votes, about 200 companies have adopted some
form of majority voting.
"I think 2007 represents something of a tipping point," said Stephen M.
Davis, a fellow at the Yale University's center for corporate governance.
"Smart companies see the writing on the wall."
Still, some corporations remain unyielding. So far this year, companies
have successfully sought the SEC's approval to keep at least 40 of the 630
corporate governance-related proposals submitted by shareholders from
coming to votes, according to ISS. Dozens more are trying.
Companies say though they have worked with investor groups to ensure
best corporate governance practices, some proposals focus on narrow
agendas that are costly and distracting to board members.
"It goes counter to what should be the fundamental question: What are
the systems of governance in place that assure companies can grow and
create more jobs and create greater shareholder value?" said John J.
Castellani, president of Business Roundtable, an association in the
District of chief executives of major U.S. companies. "We would rather
have shareholders focus on shareholder value."
Hewlett-Packard, the computer maker under investigation for using
private investigators to obtain personal phone records, has satisfied
shareholder concerns about disclosure of political contributions but tried
to exclude a proposal that would allow dissident shareholders to run board
candidates. The SEC recently declined to act on HP's request to keep the
measure off the ballot, and shareholders are scheduled to vote on it at a
March 14 meeting.
An HP spokesman declined to comment. In the company's proxy statement,
the board of directors recommends a vote against the proposal, in part
because its approval could lead to "the election of 'special interest
directors' who represent the interests of the stockholders who nominated
them, not the interests of all HP stockholders."
AT&T has sought guidance from the SEC about omitting from its proxy
ballot a proposal to allow an advisory vote on corporate compensation
practices. The SEC has not yet responded, said spokeswoman McCall Butler,
who said that the company planned to keep the resolution off the ballot.
Butler said the company is having dialogue with shareholders, and that a
"blanket 'yes' or 'no' " vote on compensation would not provide useful
feedback for the board.
Nonetheless, as the negotiations reach their peak before the annual
shareholder meetings, compensation consultants and investor groups say the
shift in the climate has altered the dynamic between boardrooms and
One reason activist shareholder groups -- mainly pension funds and
labor groups -- will walk into the meetings with a bit more swagger this
year is that new SEC rules require companies to offer more information
about pay. Such disclosures would give shareholders a better idea of the
total compensation granted to senior management, and could show that $200
million packages such as the one former Home Depot chairman and chief
executive Robert L. Nardelli got last month are in place at dozens of
companies, some corporate governance experts said.
"Boards are realizing that they need to step up and change their
standards," said Ed Durkin, director of corporate affairs for the United
Brotherhood of Carpenters and Joiners. "The way people may express their
anger at some of those numbers is to vote on resolutions that relate to
Rep. Barney Frank (D-Mass.), chairman of the House Committee on
Financial Services, said yesterday that he will hold a hearing March 8 on
strengthening the role of shareholders in setting executive compensation.
Maryland state Sens. Paul Pinsky and Richard S. Madaleno Jr. last week
introduced a bill that would prohibit a company from deducting executive
compensation as a business expense if it was more than 30 times the pay of
its lowest-paid employee. President Bush told a group of business
executives on Wall Street recently that they "need to pay attention to the
executive compensation packages that you approve."
All this, investor groups say, could motivate companies to avoid public
votes on controversial proposals by cutting deals with investors before
Durkin's group has made more than 120 proposals, 72 of them on majority
voting. He expects to have settled more than half by the start of proxy
season, up from the 25 percent settlement rate on the issue last year.
"There's significant engagement with companies now," said Ferlauto, the
AFSCME official. "Companies are realizing the disclosures that they'll be
making and are meeting with shareholders early on to try to explain away
the outsize compensation payments of CEOs."
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