Shareholder Forum for Options Policies

Forum Home Page

Options Policies Home Page

Program Reference


Washington Post, April 11, 2007 article


Morgan Stanley, Bank of N.Y. Investors Reject 'Say on Pay'
Activist Shareholders Encouraged by Vote Totals

By Tomoeh Murakami Tse
Washington Post Staff Writer
Wednesday, April 11, 2007; D01


Proposals to give shareholders a voice in executive compensation failed yesterday at two large financial companies, but the results encouraged activist investors who have pushed for votes on similar measures at more than 40 other companies this spring.

The votes at Morgan Stanley and the Bank of New York were the first this year on resolutions that would allow stockholders to cast advisory votes on pay packages for top executives. Nearly 47 percent of Bank of New York shareholders and 37 percent of Morgan Stanley shareholders supported the proposal, according to preliminary results.

"This is the beginning of the votes we'll see, and we think the votes will get stronger as the season goes by," said Richard C. Ferlauto, director of pension policy for the American Federation of State, County and Municipal Employees, which submitted the proposals at Bank of New York and Morgan Stanley.

The resolutions are the latest effort by investor groups to rein in executive pay. Public outrage over the $210 million exit package awarded in January to Home Depot's former chief executive, Robert L. Nardelli, emboldened shareholder groups to increase pressure on corporate boards over pay practices.

Shareholders have filed dozens of proposals related to executive compensation, including some seeking stronger links between pay and performance. Some are urging votes against directors who sit on executive compensation committees. Several firms have been targeted for handing big paychecks to top executives even as corporate performance lagged, while others have been singled out for compensation practices that are not on par with similar companies'.

Late last month, the House Committee on Financial Services voted in favor of a bill sponsored by its chairman, Rep. Barney Frank (D-Mass), that would give shareholders at all public companies advisory votes on executive pay.

Proposals for a vote on pay -- known as "say on pay" by activist investors -- first appeared on shareholder ballots last year. Seven such measures received an average support of 40 percent, according to Institutional Shareholder Services, a proxy advisory firm in Rockville. Several analysts expect similar proposals to win majority approval at some companies this year. Shareholders at United Technologies are scheduled to vote on pay-related proposals at the company's annual meeting today. Next week, shareholders at U.S. Bancorp, Citigroup, Wachovia and Coca-Cola will vote.

The resolutions would not be binding, meaning that directors would not be required to adopt them if they pass. However, corporate governance experts say companies typically respond in some way to nonbinding proposals that register high votes.

Some companies have already responded. In February, Aflac, the world's largest seller of supplemental health insurance, said it would allow shareholders a nonbinding vote on its corporate pay practices beginning in 2009.

This spring, some large U.S. companies and shareholders formed a working group to study how such a policy might be implemented. Among those companies was Tyco International, where AFSCME had filed a "say-on-pay" proposal from AFSCME.

The union pension fund withdrew the resolution after Tyco joined the group. Ferlauto, who is among the participants, said the group hoped to make a recommendation this summer.

Critics of the "say-on-pay" proposals say the marketplace for executive talent -- not shareholders -- should determine how top executives are paid. They argue that a yes-or-no vote is not meaningful feedback and that shareholders have other ways of registering their dissatisfaction, including withholding votes from directors.

"There are shareholders, there's a board of directors and there are executives who manage the company," said Stephen P. Mader, vice chairman of executive-search firm Christian & Timbers. Shareholders "have an opportunity to vote for directors and they have an opportunity to buy and sell the shares."

Both Morgan Stanley and the Bank of New York advised shareholders to oppose the measures.

A Bank of New York spokesman said the board of directors would meet to discuss the results.

A Morgan Stanley spokeswoman declined to comment.

In its proxy statement, Morgan Stanley said "adoption of the proposal could put our company at a competitive disadvantage and negatively impact shareholder value by impeding our ability to recruit and retain critical personnel."

According to Securities and Exchange Commission filings, John Mack, chairman and chief executive of Morgan Stanley, received a compensation package worth $41.4 million last year, including $36.2 million worth of restricted stock. Two other executives were paid more than $30 million.

Morgan Stanley's earnings rose 51 percent, to $7.5 billion, in 2006 as its share price rose 46 percent.

At the Bank of New York, compensation for Thomas A. Renyi, chairman and chief executive, totaled $13.6 million last year, according to SEC filings.

Bank of New York earned $1.5 billion in 2006, up 12 percent from 2005. Its share price rose 27 percent last year.

Supporters of giving shareholders more say on executive compensation said such policies have not disrupted corporate operations in other countries.

Bess Joffe, a manager at Hermes Investment Management, a money management firm, said shareholders in Britain have voted against executive packages in only a few cases since 2002, when advisory votes on pay went into effect there. This year, Hermes, owned by British Telecom Pension Scheme, the largest pension plan in Britain, proposed an advisory vote on pay at UnitedHealth Group.

"What it has done is foster a very healthy continued dialogue," Joffe said. "It's a real enhancement to the shareholder rights."

© 2007 The Washington Post Company




This Forum program is open, free of charge, to all shareholders of the invited corporate participants, and to any fiduciaries or professionals concerned with the investment decisions of those shareholders, according to the posted Conditions of Participation.  The Forum's purpose is to provide shareholders with access to information and a free exchange of views on issues relating to their investment interests described in the Forum Summary As stated in the Conditions, all Forum participants are expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

This Forum program has been organized with the support of Hermes Equity Ownership Services, Ltd.  It is the first in an expected series that will be managed by a not-for-profit “Institute” to be established for the purpose of continuing the Forum programs conducted by Gary Lutin.

Inquiries and requests to be included in the Forum's distribution list may be addressed to  The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material.

All material on this web site is published by Gary Lutin, who is responsible for conducting the Forum.