Shareholder Forum for Options Policies

Forum Home Page

Options Policies Home Page

Program Reference


RiskMetrics (f/k/a Institutional Shareholder Services - "ISS") Risk & Governance Weekly, June 20, 2008 article















Risk & Governance Weekly

June 20, 2008

"Say on Pay" Gets Ninth Majority

By L. Reed Walton

Investors at nine U.S. companies this year have given majority support to proposals seeking an advisory vote on executive pay, surpassing the 2007 total of eight.

Also, tax preparation firm H&R Block announced that it has amended its bylaws to provide for annual non-binding pay votes starting in 2009. The new bylaw, set out in a June 17 filing with the Securities and Exchange Commission, makes H&R Block the ninth U.S. issuer to commit to holding an annual non-binding vote on executive compensation, known as “say on pay.”

As reported previously, “say on pay” proposals have received majority support at Apple, Lexmark International, PG&E, South Financial Group, Tech Data, Motorola, and Alaska Air this year. Most recently, industrial manufacturing company Ingersoll Rand reported that investors gave 54 percent support to a pay vote proposal, while dissidents at computer server firm Rackable Systems said a similar proposal received the support of a majority of votes cast. The average support for pay vote proposals is also higher this year. With the Ingersoll Rand and Rackable results, the average support for “say on pay” has reached 43.4 percent over 46 meetings where preliminary or final results are known, according to RiskMetrics Group data. In 2007, about 50 pay vote proposals averaged 42.5 percent support.

This is the second majority result for the issue at Ingersoll, where a proposal from the American Federation of State, County, and Municipal Employees (AFSCME) received 54 percent support at the June 4 meeting, according to a company press release. Last year, a similar measure at the Montvale, N.J.-based firm, also submitted by AFSCME, won 56.7 percent support.

In December, Ingersoll reported that it would begin meeting annually with its 25 largest shareholders to discuss “say on pay.” The company plans to meet with shareholders representing at least 50 percent of its total ownership on Sept. 26, Ingersoll Rand spokesman Paul Dickard told Risk & Governance Weekly.

In light of the recent vote, Dickard said, the company’s strategy is “to be very proactive” on reaching out to its largest shareholders. Board members and executives would like a little more clarity on the issues driving the vote, as well as how to make investors more comfortable with executive pay policies and corporate governance in general, Dickard said.

Richard Ferlauto, AFSCME’s director of pension and benefit policy, told Risk & Governance Weekly that the union had heard nothing about the Sept. 26 meeting, as it is not one of Ingersoll’s largest investors. However, Ferlauto said, he would expect to have an AFSCME representative included because of past engagement between the union and the board on the “say on pay” issue. While Ingersoll said it wants to listen to its shareholders on executive pay, Ferlauto contends that investors have already spoken and are asking for an advisory vote on pay.

At Rackable Systems, a pay vote resolution, submitted by dissident Richard J. Leza, Jr. at the company’s May 29 contested meeting, won 51.4 percent of the votes cast “for” and “against,” the dissidents said. Leza submitted the proposal in response to company pay practices, according to documents filed with the SEC. This included $13 million in restricted stock grants for the firm’s new CEO, Mark Barrenechea. Rackable, a Russell 3,000 firm, has a market capitalization of about $295 million.

However, Rackable asserted in a press release that shareholders “voted to reject” the proposal. The small-cap company is incorporated in Delaware, where state law requires proposals to receive support from a “majority of shares present” (including abstentions) to pass, unless a firm adopts a different standard in its bylaws. If abstentions are included, the resolution would have received 47.4 percent support.  

This is the third year that shareholder pay vote proposals have been on the ballot at U.S. firms. While those resolutions are faring better this year, they have not achieved the third-year success posted in 2006 by investor proposals seeking a majority voting threshold in director elections. In that year, majority vote proposals averaged about 50 percent support at 84 companies and won majority support at 36 firms, according to RiskMetrics data.

Last year, “say on pay” proposals won majority support at Ingersoll, Motorola, Verizon Communications, Blockbuster, Activision, Clear Channel Communications, and Par Pharmaceutical. A resolution by the Unitarian Universalist Association of Congregations (UUA) also won 53 percent of votes cast “for” and “against” at Valero Energy in 2007.

The UUA resubmitted its proposal at San Antonio, Tex.-based Valero this year, but the company has said it will not release official voting results from its May 1 meeting until its next quarterly regulatory filing in August. Valero spokesman William Day told R&GW that none of the shareholder proposals received enough votes to “pass” this year. Valero is incorporated in Delaware, which means the proposal could have received more votes “for” than “against” and still not have “passed” by the company’s calculations, due to abstentions.

So far, four firms--Verizon, Par Pharmaceutical, Blockbuster, and Tech Data--have agreed to hold a yearly non-binding vote on pay after majority-supported resolutions. The companies will begin asking for shareholder input on executive compensation next year. In addition, bond insurance firm MBIA has committed to holding a pay vote in 2009.  Insurer Aflac, the first U.S. public firm to commit to “say on pay,” submitted its executive pay policy to an investor vote in May. The management-sponsored resolution got 93 percent support, Aflac reported. At gaming company Littlefield’s May 21 meeting, investors voted on two management proposals seeking input on executive and director pay. Management at Austin, Tex.-based Littlefield asked shareholders to determine whether the pay for Chairman and CEO Jeffrey Minch and, separately, director pay, was within “20 [percent] of an acceptable amount.”

More Majority Results Likely

More majority results for “say on pay” are likely in the coming months. Many companies, like Valero, have declined to release vote totals until their next 10-Q filing. Approximately 28 companies that held meetings in April, May, or June have yet to report certified vote results, according to RiskMetrics data. 

A few pay vote resolutions will go to a vote at firms that hold their meetings after the traditional U.S. proxy season. Shareholders at computer company Dell will vote on a resolution submitted by the AFL-CIO on July 18, and Procter & Gamble investors will vote on a similar proposal by the National Legal and Policy Center in October.






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.