THEORY & PRACTICE |
MAY 18, 2009
A Quiet Response to
'Say on Pay' Measures
So Far This Season, Shareholders Are
Supporting Compensation Packages, Most Board Nominees
Investor anger over executive pay and
management missteps isn't showing up at the corporate ballot box. In the
current proxy-voting season, management-compensation policies are winning
large support and shareholders have ousted only a handful of corporate
Shareholders this year won a long-sought
voice on executive pay, when Congress required advisory "say-on-pay" votes
at hundreds of companies that received federal bailout funds and others
adopted the practice voluntarily. Still, no company has yet lost such a
say-on-pay vote, which is merely a nonbinding yea or nay on executive pay
packages. At 15 large companies canvassed by The Wall Street Journal,
support ranged from 63.5% of votes cast at
Motorola Inc. to nearly 98% at
Goldman Sachs Group Inc.
About three-quarters of the way through proxy
season, only seven directors up for election so far this year have failed to
win a majority of votes, down from 32 in all of 2008, according to proxy
advisers RiskMetrics Group Inc. Directors are faring better even though
RiskMetrics has recommended clients oppose 20% of board members seeking
reelection in 2009, up from 16% last year.
The results suggest that even activist
investors, after long clamoring for a bigger role in setting executive pay
and selecting directors, are wielding their new clout cautiously. They also
reflect the reality that Congress's action, which came shortly before most
corporate annual meetings, left little time to organize campaigns against
pay plans. There are also subtle signs that investor activism, along with
new and proposed federal rules, are changing compensation and governance
practices at many companies.
"It's always a slow, evolutionary process
before big stockholders broadly embrace a new idea like say on pay," says
Patrick McGurn, special counsel for RiskMetrics.
Shareholders are almost certain to get more
power in the coming months. Sen. Charles Schumer, a New York Democrat, plans
to introduce a corporate governance bill Tuesday that will extend say on pay
to all public companies. Similar legislation passed the House of
Representatives in 2007. Also, the Securities and Exchange Commission is
considering giving shareholders more authority to nominate directors.
Activists can claim some victories.
Bank of America Corp. Chief Executive Kenneth Lewis relinquished his
chairmanship last month after shareholders approved a resolution requiring
the bank to separate its two top roles. But Mr. Lewis was re-elected to the
board, along with the troubled bank's other directors.
Investor unease may be quietly altering pay
and governance practices elsewhere. Consider
Verizon Communications Inc., which agreed to hold a say on pay vote this
year after shareholder complaints about compensation of CEO Ivan Seidenberg;
investors in 2007 approved a nonbinding resolution calling for such a vote.
Verizon officials lobbied institutional
investors to garner support for their pay practices before the May 7 annual
meeting. They cited a drop in Mr. Seidenberg's pay last year. His total
direct compensation fell to about $19 million, from $19.4 million the prior
Two weeks before the meeting, Verizon killed
two management perks. The New York telecommunication company wrote
shareholders to say it would stop covering executives' taxes on company-paid
premiums for certain life insurance and ban CEOs, including Mr. Seidenberg,
from making personal use of corporate aircraft after retirement.
Roughly 90% of votes cast endorsed Verizon's
It was a different story for Motorola. The
struggling telecom-equipment maker's executive compensation practices were
approved by less than two-thirds of the votes cast during its May 4 annual
meeting. Sanjay Jha, hired as co-CEO last August, garnered the biggest 2008
pay package -- initially worth $104 million -- among the heads of 200 big
U.S. companies studied by consultants Hay Group for The Wall Street Journal.
Motorola, based in Schaumburg, Ill., is one
of 42 companies with a say-on-pay vote where RiskMetrics recommended
investors oppose pay practices, citing some elements of Mr. Jha's package
and "excessive perks" for others.
Daniel Pedrotty, head of the Office of
Investment in Washington for the AFL-CIO, a big activist investor, says the
large no vote shows "no confidence" in Motorola's executive pay packages.
Spokeswoman Tama McWhinney says Motorola
"will continue to listen to all suggestions" about executive compensation.
Joann S. Lublin at
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