Shareholders’ Votes Have Done Little to Curb Lavish Executive Pay
MAY 16, 2015
been five years since the Dodd-Frank law required that companies let
investors vote on their
executive pay practices. The idea,
lawmakers said, was to give shareholders a chance to sound off when
compensation plans are not in their best interests.
has putting these matters to a vote done anything to rein in
executive pay? Not a chance. Since
these votes started being tallied, C.E.O. pay has risen on average 12
are several reasons “say on pay,” as it is known, has had little
impact on executive compensation. One may be that the votes are not
“Say-on-pay, as an advisory vote, has the biggest impact where the
corporate law regime allows for consequences if the board doesn’t
listen,” said Naizam Kanji, director of the office of mergers and
acquisitions at the Ontario Securities Commission in Toronto. “Where
boards are more immune to pressure because corporate law is not as
shareholder-friendly, the power of say-on-pay is not as great.”
perhaps the biggest reason is that few shareholders are expressing
unhappiness with compensation levels at the nation’s top companies.
year, for example, the
median shareholder support for pay practices at
the 500 largest companies was 95 percent of the shares voted,
according to a ranking compiled by the Shareholder Forum, an
independent creator of programs to help investors make sound
decisions. The vote ranking, based on data from Equilar, a
compensation analysis company in Redwood City, Calif., shows that
overall support has risen from 93.8 percent in 2011.
apparent satisfaction with pay may be a result of the rising stock
market. Shareholder dissent, when it does crop up, typically occurs at
companies that have awarded lush compensation even as their
performance has lagged. Investors watching their shares go up are less
likely to be outraged by a sizable bonus or stock grant.
among the most generous companies, shareholders’ discontent is
Last year, 15.9 percent of the shares voted at
the 100 top-paying companies were nays, compared with 15.4 percent in
2013. And among the companies whose votes have occurred so far in
2015, the dissent figure has increased to 18.4 percent.
The Top Tier: How Shareholders Have Voted
Investor dissent on executive compensation has sometimes surged at
companies with the highest-paid C.E.O.s. Below, some companies with
say-on-pay votes in the last three years.
Sources: Equilar 200 Highest-Paid CEO Rankings; the Shareholder Forum;
By The New York Times
Lutin, a former investment banker at Lutin & Company who oversees the
Shareholder Forum in New York, said the
say-on-pay rankings provided great
value to investors.
“They’re really a perfect gauge of management’s respect for the
company’s shareholders, measured by the shareholders,” he said.
“Whether the voting is based on specific management practices or on
the effort management made to explain that conduct, it reflects the
level of respect management has shown for the investors whose money
they used to pay themselves.”
some cases, the figures compiled by the Shareholder Forum show just
how willing many boards are to ignore the expressed wishes of many of
Consider the 10 companies with the highest pay in 2014. Given the
opportunity to vote on earlier pay packages, shareholders at four of
them expressed widespread discontent. (To be included here, the
companies had to have been public for at least two years and their top
executives in place for that period.)
The Most Dissent: Where Large Numbers Have Said No
Highest-paying companies ranked by the proportion of votes against
executive compensation taken at their 2014 annual meetings.
Sources: Equilar 200 Highest-Paid CEO Rankings; the Shareholder Forum
By The New York Times
The company receiving the largest dissent — 54
percent — was
Oracle. Its shareholders have long
complained about how much the board pays
Lawrence J. Ellison, its founder.
Second on the dissent list was David M. Zaslav,
chief executive at
Discovery Communications and the
highest-paid C.E.O. in the nation. He received compensation worth $156
million last year, a 368 percent increase over 2013.
last year’s annual meeting, when investors had information on Mr.
Zaslav’s compensation for 2013, 41 percent of the voted shares
rejected Discovery’s pay practices.
Another case in point:
David T. Hamamoto, chief executive of Northstar
Realty Finance, a real estate investment company. Some 39
percent of the votes cast at the company’s 2014 annual meeting were
against its executive pay, but Mr. Hamamoto’s $60 million package for
last year was an increase of 227 percent over 2013.
Leonard Schleifer, the chief executive of
Regeneron Pharmaceuticals, a biopharmaceutical company.
received $42 million in compensation last year, a 15 percent increase;
38 percent of the votes cast at the 2014 shareholders’ meeting
disapproved of the company’s pay practices.
spokeswoman for Regeneron defended its pay practices by noting its
high-performing stock price. Nevertheless, she said that after the
shareholder vote, the board reduced the top executives’ options grants
by 16 percent and also began limiting perquisites to its C.E.O. and
chief scientific officer.
of the other companies would comment.
20 companies awarding the highest pay, nine put their pay to a
shareholder vote only once every three years, the minimum required
under Dodd-Frank. Far more common is an annual vote; among the top 200
companies on the pay list, roughly three-quarters let shareholders
look at the companies that have encountered the greatest dissent on
pay, eight of the 200 received nays totaling at least 54 percent of
the shares voted at their annual meetings in 2014. But four of them
gave raises to their chief executives that year.
Chipotle Mexican Grill, the restaurant chain,
was one. Although 77 percent of the shares voted last year were
against its pay, both of the company’s co-chief executives received 15
percent increases in 2014.
Arnold, a spokesman for Chipotle, said this big thumbs-down led the
company’s board to change its policies, such as reducing the
grant-date value of stock to be awarded in 2015.
Shareholders appreciated the changes, Mr. Arnold added. At the
company’s annual meeting on Wednesday, 95 percent of the votes cast
supported the company’s pay.
United Therapeutics, a pharmaceutical company,
has also run into objections on pay. Last year, 58 percent of the
votes cast rejected its compensation policies. Still, its chief
executive, Martine Rothblatt, received $31.6 million.
Although that was a 17 percent decline from 2013, Ms. Rothblatt’s pay
will be subject to more limitations in the future, said Michael
Benkowitz, executive vice president for organizational development at
United Therapeutics. “We went out and talked to several of our large
shareholders about the compensation plan and their concerns,” he said.
result of those talks, Ms. Rothblatt’s option grants will fall to a
maximum of 300,000, down from a million, he said. And while those
grants were previously based solely on growth in the company’s market
value, now they will be based on several performance measures. In
addition, these options will become exercisable over four years,
instead of vesting immediately, as had been the case.
Finally, there’s TCF Financial, a bank holding
company in Wayzata, Minn., that has had four years of high dissent
votes on executive pay. Last year, William A. Cooper, the chief
executive, received $13 million, a 170 percent raise over 2013.
why, Mark Goldman, a spokesman, said much of this year’s compensation
“was based on prior governance practices.” But the company’s board
recently reduced the target for annual cash incentives for executives,
he said, and proposed giving shareholders the right to call a special
hope shareholders will support the actions we have taken,” he said.
far, they haven’t. At TCF’s annual meeting in April, 69 percent of the
shares voted went against its pay.
Clearly, working to rein in executive pay is a glacial process. But if
shareholders don’t at least vote against outsize pay, they have only
themselves to blame.
A version of this article appears in print on May 17, 2015, on page
BU1 of the New York edition with the headline: Shareholders’ Votes
Have Done Little to Curb the Festivities.
© 2015 The
New York Times Company