October 5, 2009
The Proposal for a Triennial Vote on
The discussion about the
value of holding an Advisory Vote on Executive Compensation ( Say on Pay )
has grown enormously since the seeds were first planted in the United States
through a small number of AFSCME sponsored shareholder resolutions several
years ago .
Investor support rapidly escalated with 2009 resolutions urging this reform
averaging 46-47% and 22 receiving over 50% votes to date. In addition to the
over 300 companies receiving TARP funds that are required to hold an
Advisory Vote, 27 companies have stepped forward and agreed to implement the
vote themselves, in their 2009 or 2010 proxies. Other companies, especially
those with high votes are deliberating when they will institute SOP.
And Congress has been actively pursuing SOP with the strong support of the
Treasury, SEC and the President, leaving most observers to expect that
legislation will empower the SEC to adopt rules resulting in all large cap
companies being required to have annual Advisory Votes by their 2011
Thus it is curious to see, in this 11th hour, the alternative of having an
Advisory Vote every 3 years emerging. This variation on the theme surfaced
when the Carpenters Union, led by Ed Durkin, filed 20 or so resolutions
seeking both a triennial vote and expanded communications between investors
and management and the Board.
This last point urging expanded investor communications is a welcome echo of
the appeals of proponents for SOP. Indeed a vote without communications to
help interpret the message sent has very real limits. It is wise and timely
to stress that the two go together.
However it is curious that the Carpenters now emerge as a supporter of any
form at all of advisory voting since during the last 3 years they are
frequently quoted criticizing the idea. Now, as it seems to be on the verge
of being institutionalized, they propose a variation on the theme. And
unfortunately they seem interested in enlisting allies among corporate
secretaries to water down any SOP legislation before Congress.
However this testing of the triennial waters has real drawbacks that make it
a mistake to consider as a public policy alternative
First companies with pay for “non performance”, questionable percs such as
Golden Coffins or Grossups, spiraling pay or a host of other compensation
problems would love to avoid annual accountability and only face their
shareowners every 3 years. Perhaps we could call this a proposal for
“occasional accountability”. Yet with the problems with pay still front and
center and covered daily in the media, it seems like this is not the time to
propose weaker measures.
On a parallel issue a majority of investors vote regularly for annual
elections of Directors and not staggered Boards with elections every 3
years. And likewise they wish to vote annually to ratify the Auditors.
Accountability on these issues should be an annual exercise they reason.
Recently Microsoft announced that they would implement a management
sponsored Advisory Vote for their upcoming annual meeting. They made a
number of supportive comments about the utility of the vote twinned with
expanded investor communication. The Calvert Group and Walden Asset
Management had sponsored the resolution on this topic and were pleased to
withdraw our resolution in response. Microsoft in its blog announcing the
decision stated its preference for a triennial vote. As investors we
reasoned that the Senate would act to institute an annual vote thus
rendering the triennial approach moot so gladly accepted this vote of
confidence in shareowners being able to send a message on comp via SOP.
One argument raised supporting the triennial vote is that is protects
investors from a deluge of work every year when voting their proxies. Indeed
an additional annual vote does add a new voting discipline. However many
institutional investors have voted for exactly this reform providing a clear
mandate for action. They acted similarly over the last years supporting
majority votes for directors, a reform launched by the Carpenters union.
This helped spark rapid market reform as companies moved with dispatch to
adopt majority voting policies.
And investors generally feel comfortable with processing an annual vote. Of
course extra work is involved, but intelligent investors will set up a
system whereby urgent comp issues are put on the top of the pile for review
and action just as we look at election of board members selectively when we
vote. They will get priority attention as needed. And of course many votes
on comp will be routine just as voting on directors and auditors or option
plans often may be run of the mill.
Thus a proposal for a triennial vote on pay is not necessary to protect
investors and certainly is a step backwards in corporate accountability on
Senior Vice President
Environment, Social and Governance Group
Walden Asset Management
33rd floor, One Beacon St.,
Boston, MA. 02108