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Source: The New York Times | Fair Game, May 16, 2015 column


Business Day

Shareholders’ Votes Have Done Little to Curb Lavish Executive Pay

MAY 16, 2015

It’s been five years since the Dodd-Frank law required that companies let investors vote on their executive pay practices. The idea, lawmakers said, was to give shareholders a chance to sound off when compensation plans are not in their best interests.

But has putting these matters to a vote done anything to rein in executive pay? Not a chance. Since these votes started being tallied, C.E.O. pay has risen on average 12 percent annually.

There are several reasons “say on pay,” as it is known, has had little impact on executive compensation. One may be that the votes are not binding.

“Say-on-pay, as an advisory vote, has the biggest impact where the corporate law regime allows for consequences if the board doesn’t listen,” said Naizam Kanji, director of the office of mergers and acquisitions at the Ontario Securities Commission in Toronto. “Where boards are more immune to pressure because corporate law is not as shareholder-friendly, the power of say-on-pay is not as great.”

But perhaps the biggest reason is that few shareholders are expressing unhappiness with compensation levels at the nation’s top companies.

Last year, for example, the median shareholder support for pay practices at the 500 largest companies was 95 percent of the shares voted, according to a ranking compiled by the Shareholder Forum, an independent creator of programs to help investors make sound decisions. The vote ranking, based on data from Equilar, a compensation analysis company in Redwood City, Calif., shows that overall support has risen from 93.8 percent in 2011.

This apparent satisfaction with pay may be a result of the rising stock market. Shareholder dissent, when it does crop up, typically occurs at companies that have awarded lush compensation even as their performance has lagged. Investors watching their shares go up are less likely to be outraged by a sizable bonus or stock grant.

Still, among the most generous companies, shareholders’ discontent is percolating. Last year, 15.9 percent of the shares voted at the 100 top-paying companies were nays, compared with 15.4 percent in 2013. And among the companies whose votes have occurred so far in 2015, the dissent figure has increased to 18.4 percent.

The Top Tier: How Shareholders Have Voted

Investor dissent on executive compensation has sometimes surged at companies with the highest-paid C.E.O.s. Below, some companies with say-on-pay votes in the last three years.

Sources: Equilar 200 Highest-Paid CEO Rankings; the Shareholder Forum; company filings

By The New York Times

Gary Lutin, a former investment banker at Lutin & Company who oversees the Shareholder Forum in New York, said the say-on-pay rankings provided great value to investors.

“They’re really a perfect gauge of management’s respect for the company’s shareholders, measured by the shareholders,” he said. “Whether the voting is based on specific management practices or on the effort management made to explain that conduct, it reflects the level of respect management has shown for the investors whose money they used to pay themselves.”

In some cases, the figures compiled by the Shareholder Forum show just how willing many boards are to ignore the expressed wishes of many of their shareholders.

Consider the 10 companies with the highest pay in 2014. Given the opportunity to vote on earlier pay packages, shareholders at four of them expressed widespread discontent. (To be included here, the companies had to have been public for at least two years and their top executives in place for that period.)

The Most Dissent: Where Large Numbers Have Said No

Highest-paying companies ranked by the proportion of votes against executive compensation taken at their 2014 annual meetings.

Sources: Equilar 200 Highest-Paid CEO Rankings; the Shareholder Forum

By The New York Times

The company receiving the largest dissent — 54 percent — was Oracle. Its shareholders have long complained about how much the board pays Lawrence J. Ellison, its founder. Second on the dissent list was David M. Zaslav, chief executive at Discovery Communications and the highest-paid C.E.O. in the nation. He received compensation worth $156 million last year, a 368 percent increase over 2013.

At last year’s annual meeting, when investors had information on Mr. Zaslav’s compensation for 2013, 41 percent of the voted shares rejected Discovery’s pay practices.

Another case in point: David T. Hamamoto, chief executive of Northstar Realty Finance, a real estate investment company. Some 39 percent of the votes cast at the company’s 2014 annual meeting were against its executive pay, but Mr. Hamamoto’s $60 million package for last year was an increase of 227 percent over 2013.

Then there’s Leonard Schleifer, the chief executive of Regeneron Pharmaceuticals, a biopharmaceutical company.

He received $42 million in compensation last year, a 15 percent increase; 38 percent of the votes cast at the 2014 shareholders’ meeting disapproved of the company’s pay practices.

A spokeswoman for Regeneron defended its pay practices by noting its high-performing stock price. Nevertheless, she said that after the shareholder vote, the board reduced the top executives’ options grants by 16 percent and also began limiting perquisites to its C.E.O. and chief scientific officer.

None of the other companies would comment.

Of the 20 companies awarding the highest pay, nine put their pay to a shareholder vote only once every three years, the minimum required under Dodd-Frank. Far more common is an annual vote; among the top 200 companies on the pay list, roughly three-quarters let shareholders vote annually.

If you look at the companies that have encountered the greatest dissent on pay, eight of the 200 received nays totaling at least 54 percent of the shares voted at their annual meetings in 2014. But four of them gave raises to their chief executives that year.

Chipotle Mexican Grill, the restaurant chain, was one. Although 77 percent of the shares voted last year were against its pay, both of the company’s co-chief executives received 15 percent increases in 2014.

Chris Arnold, a spokesman for Chipotle, said this big thumbs-down led the company’s board to change its policies, such as reducing the grant-date value of stock to be awarded in 2015.

Shareholders appreciated the changes, Mr. Arnold added. At the company’s annual meeting on Wednesday, 95 percent of the votes cast supported the company’s pay.

United Therapeutics, a pharmaceutical company, has also run into objections on pay. Last year, 58 percent of the votes cast rejected its compensation policies. Still, its chief executive, Martine Rothblatt, received $31.6 million.

Although that was a 17 percent decline from 2013, Ms. Rothblatt’s pay will be subject to more limitations in the future, said Michael Benkowitz, executive vice president for organizational development at United Therapeutics. “We went out and talked to several of our large shareholders about the compensation plan and their concerns,” he said.

As a result of those talks, Ms. Rothblatt’s option grants will fall to a maximum of 300,000, down from a million, he said. And while those grants were previously based solely on growth in the company’s market value, now they will be based on several performance measures. In addition, these options will become exercisable over four years, instead of vesting immediately, as had been the case.

Finally, there’s TCF Financial, a bank holding company in Wayzata, Minn., that has had four years of high dissent votes on executive pay. Last year, William A. Cooper, the chief executive, received $13 million, a 170 percent raise over 2013.

Asked why, Mark Goldman, a spokesman, said much of this year’s compensation “was based on prior governance practices.” But the company’s board recently reduced the target for annual cash incentives for executives, he said, and proposed giving shareholders the right to call a special meeting.

“We hope shareholders will support the actions we have taken,” he said.

So far, they haven’t. At TCF’s annual meeting in April, 69 percent of the shares voted went against its pay.

Clearly, working to rein in executive pay is a glacial process. But if shareholders don’t at least vote against outsize pay, they have only themselves to blame.


A version of this article appears in print on May 17, 2015, on page BU1 of the New York edition with the headline: Shareholders’ Votes Have Done Little to Curb the Festivities.


© 2015 The New York Times Company

Shareholder Support Rankings

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Votes for Management Compensation

Shareholder Support Rankings™ analyses are produced by

The Shareholder Forum from research data provided by Equilar, Inc., calculated as the percentage of total votes cast for, against and abstaining in advisory “Say on Pay” shareholder approvals of executive compensation.

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