August 18, 2008
Should investors in the
have additional tools with which to communicate to the Boards and
managements of companies in which they invest what their reactions are to
the CD&A, and the compensation packages of top executives? As we all know it
is not an unknown concept for investors to be able to weigh in on parts of
executive comp at present since we already have opportunities to vote on
resolutions presenting options packages, a system that seems to work well
and has not prompted undue alarm by companies. The new reform requesting an
Advisory Vote is a logical next step.
In fact investors already
spend time and energy assessing options packages demonstrating their acumen
on that vote. Don’t they also have the wisdom to assess the adequacy of a
CD& A or the company offered percs or the ways in which performance is
adequately linked to pay and vote Yes, No or Abstain on a proxy ? And
shouldn’t a management and Board attentive to their shareowners concerns
have the ability to learn from that input and adjust their pay package if
changes are warranted.
This year Aflac presented
the resolution to investors with 93% of the votes in favor, indicating
investor support for a reasonable compensation package. Daniel Amos,
Chairman and CEO - AFLAC, led his company to adopt an annual shareowner
advisory vote mechanism. Mr.. Amos said, "An advisory vote on our
compensation report is a helpful avenue for our shareholders to provide
feedback on our (long-standing) pay-for-performance compensation philosophy
and pay package." NIRI IR Advisor (April 30, 2008).
Surely a company that has a
clearly explained compensation philosophy and metrics, a reasonable link of
pay for performance, and communicates effectively to investors will find a
management sponsored Advisory Vote a helpful tool.
Investors are increasingly
concerned about mushrooming executive compensation. In 2008, shareholders
filed close to 100 “Say on Pay” resolutions. Votes on these resolutions have
averaged 43% in favor, with ten votes over 50%., demonstrating strong
shareholder support for this reform in both 2007 and 2008.
The resolution allows
shareholders to express their opinion about senior executive compensation by
establishing an annual referendum process. The results of such a vote would
provide the board and management with useful information about whether
shareholders view the company’s senior executive compensation are perceived
to be in shareholders’ best interest.
Proxy voting service
RiskMetrics Group, recommends votes in favor, noting: “RiskMetrics
encourages companies to allow shareholders to express their opinions of
executive compensation practices by establishing an annual referendum
process. An advisory vote on executive compensation is another step forward
in enhancing board accountability.” In fact Risk Metrics, a public company,
put this this into effect itself polling its investors on its compensation
philosophy breaking the question into 3 sections to refine the collection of
Eight other companies have
also agreed to an Advisory Vote, including Verizon, Blockbuster, HR Block,
Tech Data and TIAA-CREF, the world’s largest pension fund.
Existing U.S. Securities
and Exchange Commission rules and stock exchange listing standards do not
provide shareholders with sufficient mechanisms for providing input to
boards on senior executive compensation. In contrast, in the United Kingdom,
public companies allow shareholders to cast a vote on the “directors’
remuneration report,” which discloses executive compensation. Such a vote
isn’t binding, but gives shareholders a clear voice that helps provide input
on senior executive compensation.
The Advisory Vote on
executive pay is much less threatening than many companies or compensation
consultants are arguing. For most companies it will be as routine as voting
on the Ratification of Auditors.
Senior Vice President
Environment, Social and
Walden Asset Management
33rd floor, One Beacon St.,