In Australia, Sweden, Britain and the Netherlands,
shareholders vote each year on whether a company's executive
compensation is acceptable. A thumbs-down vote doesn't force board
members to start over, but it does put pressure on them to think twice
about management's rewards.
Could such a system help U.S. companies get chief
executive officers' pay under control?
Activist shareholders hope so. They are bombarding
nearly 100 companies' proxy statements this year with resolutions
calling for advisory votes on executive-compensation plans. Shareholders
in companies such as Citigroup, Wal-Mart Stores, Merck,
Apple and Occidental Petroleum will be asked whether they
want what is becoming known as a "say on pay."
Such nonbinding resolutions attracted slightly more
than 40% support on average last year, when they first began appearing
in sizable numbers in U.S. proxies. That support elated union and
church-group sponsors, whose proposals often fetch 15% or less of
holders' votes. Some of these activists began talking about say on pay
as a governance breakthrough that could soon become standard practice in
the U.S., too.
The activists, however, didn't reckon on big companies'
resistance. For a variety of reasons -- some stated in proxy statements,
others expressed more bluntly in private conversations -- most big
companies don't like say on pay. So instead of rapidly meeting the
desires of these shareholder coalitions, many are digging in their heels
and hoping the whole brouhaha goes away.
"This is fairly tough medicine for boards to take,"
says Richard Ferlauto, director of corporate governance and investment
policy at the American Federation of State, County and Municipal
Employees union, which is a leading sponsor of say-on-pay proposals.
"They see this as giving up too much of the board's prerogatives."
In proxy statements, companies contend that unhappy
shareholders have sufficient redress already. Such holders can contact
directors on their own about pay gripes. Holders also can vote against
directors on a company's compensation committee. So, these companies
contend, a say-on-pay vote isn't necessary.
Privately, corporate leaders and their allies squirm at
the notion of letting outsiders with their own agendas peer too deeply
into the murky world of pay deliberations. Union-affiliated holders may
want to pressure a CEO for political reasons, they fear. Hedge funds may
want rapid changes that don't allow long-term plans to be carried out.
There's also apprehension that if some companies in an
industry let holders vote on executive pay and others don't, the first
group could be at a competitive disadvantage. And if investors won the
right to vote regularly on pay, could other boardroom decisions be
reassessed by holders, too, to the point that boards' power would become
All those fears may be cowardly, or, at the very least,
may be attracting undue weight. Executive pay has been climbing at rates
as high as 13% a year, far outstripping general productivity or economic
growth. That suggests boards could use some help in firming up their pay
Yet most companies that have been targeted with
say-on-pay proposals are holding firm against them. That includes
companies such as Valero Energy, where 53% of holders last year
said they wanted an advisory vote on pay. Valero hasn't granted one. The
matter is due for another vote this year, and while Valero's official
response in its proxy isn't out yet, a company spokesman says a major
change from last year's position isn't likely.
Of the 50 or so U.S. companies where say on pay made it
to the ballot last year, only Verizon Communications and Par
Pharmaceutical have decided to give shareholders such annual
advisory votes. (Aflac is embracing say on pay on its own.)
This year, shareholder activists have targeted a lot of
financial companies whose slumping business results and hefty bonuses or
severance packages for ousted executives may stir up investor
Say-on-pay votes also are scheduled for companies such
as General Electric and International Business Machines,
which generally have been regarded as models of sound management. Those
votes may attract fewer supporters.
Longtime activists such as the California Public
Employees' Retirement System generally support say on pay. So do most of
the shareholder-advisory services. But Fidelity Investments and Barclays
Global Investors have generally abstained or voted against say on pay,
regarding it as getting overly involved in details better left to
In Britain, studies suggest that advisory votes have
helped tie CEO pay more closely to performance but haven't slowed rising
A closer look at say on pay's popularity around the
world, in fact, shows that it generally catches on as the result of
comprehensive governance reform, rather than a company-by-company
approach. In the U.S., activists and corporate boards are committed this
spring to slugging it out at annual meetings, one company at a time. But
the initiative's ultimate fate is more likely to be decided in
Washington, particularly if the Democrats prevail in November.
Democratic presidential front-runner Sen. Barack Obama
last year introduced a say-on-pay bill in the Senate, a measure that
attracted support from his main Democratic rival, Sen. Hillary Clinton.
Such legislation passed in the House but remains stalled in the Senate.
An Obama spokesman said recently that the candidate would push for it if
Write to George Anders at