Stanley, Bank of N.Y. Investors Reject 'Say on Pay'
Activist Shareholders Encouraged by Vote Totals
Washington Post Staff Writer
Wednesday, April 11, 2007; D01
Proposals to give shareholders
a voice in executive compensation failed yesterday at two large financial
companies, but the results encouraged activist investors who have pushed
for votes on similar measures at more than 40 other companies this spring.
The votes at Morgan Stanley and the
Bank of New York were the first this year on resolutions that would
allow stockholders to cast advisory votes on pay packages for top
executives. Nearly 47 percent of Bank of New York shareholders and 37
percent of Morgan Stanley shareholders supported the proposal, according
to preliminary results.
"This is the beginning of the votes we'll see, and we think the votes
will get stronger as the season goes by," said Richard C. Ferlauto,
director of pension policy for the American Federation of State, County
and Municipal Employees, which submitted the proposals at Bank of New York
and Morgan Stanley.
The resolutions are the latest effort by investor groups to rein in
executive pay. Public outrage over the $210 million exit package awarded
in January to
Home Depot's former chief executive, Robert L. Nardelli, emboldened
shareholder groups to increase pressure on corporate boards over pay
Shareholders have filed dozens of proposals related to executive
compensation, including some seeking stronger links between pay and
performance. Some are urging votes against directors who sit on executive
compensation committees. Several firms have been targeted for handing big
paychecks to top executives even as corporate performance lagged, while
others have been singled out for compensation practices that are not on
par with similar companies'.
Late last month, the House Committee on Financial Services voted in
favor of a bill sponsored by its chairman, Rep. Barney Frank (D-Mass),
that would give shareholders at all public companies advisory votes on
Proposals for a vote on pay -- known as "say on pay" by activist
investors -- first appeared on shareholder ballots last year. Seven such
measures received an average support of 40 percent, according to
Institutional Shareholder Services, a proxy advisory firm in Rockville.
Several analysts expect similar proposals to win majority approval at some
companies this year. Shareholders at
United Technologies are scheduled to vote on pay-related proposals at
the company's annual meeting today. Next week, shareholders at
Wachovia and Coca-Cola will vote.
The resolutions would not be binding, meaning that directors would not
be required to adopt them if they pass. However, corporate governance
experts say companies typically respond in some way to nonbinding
proposals that register high votes.
Some companies have already responded. In February, 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
This spring, some large U.S. companies and shareholders formed a
working group to study how such a policy might be implemented. Among those
Tyco International, where AFSCME had filed a "say-on-pay" proposal
The union pension fund withdrew the resolution after Tyco joined the
group. Ferlauto, who is among the participants, said the group hoped to
make a recommendation this summer.
Critics of the "say-on-pay" proposals say the marketplace for executive
talent -- not shareholders -- should determine how top executives are
paid. They argue that a yes-or-no vote is not meaningful feedback and that
shareholders have other ways of registering their dissatisfaction,
including withholding votes from directors.
"There are shareholders, there's a board of directors and there are
executives who manage the company," said Stephen P. Mader, vice chairman
of executive-search firm Christian & Timbers. Shareholders "have an
opportunity to vote for directors and they have an opportunity to buy and
sell the shares."
Both Morgan Stanley and the Bank of New York advised shareholders to
oppose the measures.
A Bank of New York spokesman said the board of directors would meet to
discuss the results.
A Morgan Stanley spokeswoman declined to comment.
In its proxy statement, Morgan Stanley said "adoption of the proposal
could put our company at a competitive disadvantage and negatively impact
shareholder value by impeding our ability to recruit and retain critical
According to Securities and Exchange Commission filings, John Mack,
chairman and chief executive of Morgan Stanley, received a compensation
package worth $41.4 million last year, including $36.2 million worth of
restricted stock. Two other executives were paid more than $30 million.
Morgan Stanley's earnings rose 51 percent, to $7.5 billion, in 2006 as
its share price rose 46 percent.
At the Bank of New York, compensation for Thomas A. Renyi, chairman and
chief executive, totaled $13.6 million last year, according to SEC
Bank of New York earned $1.5 billion in 2006, up 12 percent from 2005.
Its share price rose 27 percent last year.
Supporters of giving shareholders more say on executive compensation
said such policies have not disrupted corporate operations in other
Bess Joffe, a manager at Hermes Investment Management, a money
management firm, said shareholders in Britain have voted against executive
packages in only a few cases since 2002, when advisory votes on pay went
into effect there. This year, Hermes, owned by British Telecom Pension
Scheme, the largest pension plan in Britain, proposed an advisory vote on
pay at UnitedHealth Group.
"What it has done is foster a very healthy continued dialogue," Joffe
said. "It's a real enhancement to the shareholder rights."
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