In a radical twist on the say-on-pay movement, the United Brotherhood of
Carpenters Pension Fund has submitted a new proxy proposal to 20 companies
in the last few weeks.
The so-called triennial executive pay (TEP) vote proposal seeks
shareholder votes on executive pay overall and three aspects of it every
three years. Plus, in a first for proxy proposals, the TEP vote program
includes a ‘forum’ for the compensation committee to engage with
The Carpenters’ union has always criticized say on pay as a waste of time
for investors which does nothing to help change compensation practices. Now
it wants the 500 or so biggest US companies to hold staggered, triennial
votes, making for a lighter proxy workload for shareholders compared to
potentially universal say on pay.
The TEP vote program came to light in letter from the Carpenters to
Procter & Gamble dated April 28, which was posted by Tim Smith, director of
socially responsive investment at Walden Asset Management, on the website
Say on Pay 2009. The Carpenters union sent its last six letters
yesterday and plans to announce the whole list of 20 next week. The targets
have annual meetings scheduled for late 2009 or early 2010. P&G, for
example, had its last annual meeting in October 2008.
Into the pay fray
The Carpenters union may have avoided say on pay but it has not ducked the
pay debate. For instance, it evaluated around 75 companies leading up to the
2008 proxy season and submitted ‘pay for superior performance’ resolutions
to 34, later dropping 28 of them after discussions.
The plan for 2009 was to dispense with proposals and instead send
compensation scorecards as the basis for dialogue. Corporate affairs
director Ed Durkin and his team spent last year’s post-season analyzing the
CD&As of 120 companies using a 39-point ‘pay for superior performance’
evaluation. They sent out the scorecards in the fall.
Meanwhile, the Carpenters submitted proposals to limit pay at around 30
of the biggest TARP recipients. They later withdrew them because President
Obama’s February stimulus plan had pay provisions for TARP companies,
including say on pay.
The Carpenters scoffed all along at forcing say-on-pay votes on the
entire universe of public companies – a notion Durkin says is misunderstood
by its advocates at the SEC and on Capitol Hill. ‘It would turn voting into
a checklist process and it would not help improve executive compensation,’
The Carpenters’ portfolio, for example, has around 3,700 companies. ‘You
would get very dumbed-down analysis if we had to evaluate the CD&As of 3,700
companies,’ Durkin explains. ‘Roping all those companies into a vote
obligation would create a nightmarish amount of work for thoughtful
Instead, the union wants the 500 or so largest companies, or about 170 a
year, to hold triennial votes, in the hope that their improved pay practices
would set industry trends.
Durkin adds that mandating a TEP vote for large companies wouldn’t
prevent shareholders from submitting TEP vote proposals at smaller companies
Along with a vote on compensation overall, the Carpenters union proposes
a ballot covering three pay components: the annual incentive plan, long-term
incentives, and post-employment benefits like retirement or
change-of-control benefits. ‘It needs to be more informative than a straight
up-and-down vote,’ Durkin says.
Durkin emphasizes that the first 20 companies to get the TEP vote
proposal don’t necessarily have bad compensation practices. However, they
have been subjected to the Carpenters’ 39-point pay-for-superior-performance
evaluation and all probably have room for improvement.
IR in the picture
From an IR point of view, perhaps the most remarkable element of the TEP
vote program is a proposed forum in which shareholders would join in
discussion with compensation committee members.
Smith, who previously submitted a proposal for P&G to hold an annual
advisory vote on pay, disagrees with the Carpenters’ three-year timeline.
However, he endorses merging the vote with a forum. ‘Proponents of the
[say-on-pay] advisory vote have already been very active in promoting robust
communications processes,’ he says. ‘The Carpenters’ resolution is just the
tip of the iceberg.’
Smith believes forums similar to what the Carpenters are proposing might
be championed in the next round of say-on-pay proposals, either in the
resolutions or in the supporting statements –
if there’s a next round. Both he and
Durkin say their proposals could be moot if Senator Charles Schumer or
Representative Barney Frank succeed in legislating say on pay in their
expected packages of reforms.
By Neil Stewart