After going nowhere last year, shareholder
proposals to limit executive compensation at banks and securities firms
are back with a vengeance.
40 financial firms have been hit with pay-related proposals, including
Bank of America Corp.,
J.P. Morgan Chase & Co. and Morgan Stanley. Most of the targets are
recipients of government capital from the Troubled Asset Relief Program.
The total is up from about two dozen in
2008, according to proxy advisers RiskMetrics Group Inc. Some financial
companies already are bracing for defeat on executive-pay votes, conceding
that many investors are fed up with lousy returns and public-relations
blunders that make it look like Wall Street has lost touch with reality.
Other financial firms are fighting to keep
shareholder proposals off proxy statements due to flood mailboxes in
March, and some companies are trying to negotiate compromises that could
avert potential embarrassment at their next annual meeting.
"The movement seemed to plateau last year,
but the financial crisis has stoked shareholder frustration on pay
issues," says Stephen Davis, a senior fellow at Yale University's
Millstein Center for Corporate Governance and Performance in New Haven,
Conn. "Investors will take out that frustration on companies with votes
Typical of this year's turn-up-the-heat
strategy is the United Brotherhood of Carpenters, which has submitted
shareholder proposals to 21 TARP recipients. The 650,000-member union
wants to limit bonuses and severance pay for senior executives to no more
than the executive's annual salary. In addition, executives would be
required to hold at least 75% of shares obtained from vested stock options
for the full term of their employment.
"We are confident we will get broad
shareholder support for measures that are included on the proxy," says
Edward Durkin, the union's director of corporate affairs.
Proposals requiring an annual advisory
shareholder vote on executive compensation at Bank of America, Bank of New
York Mellon Corp. and
Goldman Sachs Group Inc. in 2008 each received support from investors
representing at least 45% of the shares.
Since then, the tide has turned against
financial institutions. President Barack Obama has said that he supports
"say-on-pay" measures that would authorize an annual shareholder vote on
executive compensation. A congressional committee's seven-hour bombardment
of bank CEOs on Wednesday over their pay, perks and culpability for the
nation's financial crisis also could prod some institutional and
individual shareholders into backing proposals they ignored in the past,
"The hearings elevate the issue with the
boards and with the public," says Timothy Smith, a senior vice president
at Walden Asset Management, a unit of Boston Trust & Investment Management
Emboldened by the shifting winds, the
American Federation of State, County and Municipal Employees Pension Plan
has submitted shareholder proposals at Charles Schwab Corp., E*Trade
Financial Corp. and J.P. Morgan that would curb or eliminate bonuses based
on short-term performance.
Five additional proposals by the union's
pension plan would require executives to hold onto shares in their company
for two years after leaving the company, which the sponsor says will
further align executives' personal interests with their companies'.
Meanwhile, the American Federation of
State, County and Municipal Employees is trying again to win annual
advisory shareholder votes for executive-compensation proposals at 15
financial firms, including Bank of New York and Citigroup.
"We are submitting reform proposals that go
to the heart of a pay structure that encourages risk," says Richard
Ferlauto, director of corporate governance at AFSCME. "Executives should
feel the pain for wrong decisions."
Some of the targeted companies say the
reasons why such proposals are a bad idea are as strong as ever. Companies
contend that current pay structures are necessary to attract and retain
talent, despite job losses on Wall Street. In response, about a dozen
companies have appealed to securities regulators for approval to keep
certain executive-pay measures off the proxy statement, according to the
The Securities and Exchange Commission can
decide that a proposal is too vague or otherwise flawed and then inform a
company that it will take no action if the company omits the proposal.
Officials at J.P. Morgan and Morgan
Stanley, which are fighting shareholder proposals at the SEC, declined to
So far, the SEC has sided with only two
financial companies on pay-related shareholder proposals leading up to
this spring's annual-meeting season.
SunTrust Banks Inc., a regional bank based in Atlanta, may exclude a
proposal made by the International Brotherhood of Teamsters, the agency
ruled, because the union didn't specify the period for the pay
"We believe our executive compensation is
performance-based and consistent with shareholder interests," says Mike
McCoy, a SunTrust spokesman.
Write to Craig Karmin at