The Shareholder ForumTM


"Say on Pay" Proposals

Forum Home Page

"Say on Pay" Home Page

Program Reference


Reuters, October 17, 2008 article



Financial crisis fuels corporate reformers

Fri Oct 17, 2008 3:39pm EDT

By Martha Graybow

NEW YORK (Reuters) - For U.S. investor advocates, the financial crisis could be the opportunity to rally more shareholders around a slew of long-sought corporate reforms -- with a big bull's-eye on executive payouts and board independence.

The sharp declines in investors' portfolios, widespread dismay with Wall Street's leadership and the possibility of a Democrat in the White House in January could set the stage for a dramatic annual meeting season next spring.

The political pressure from angry politicians may also pressure companies to negotiate with activist shareholders and acquiesce to their demands to avoid public showdowns.

In recent days, New York's attorney general has taken American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz) to task for lucrative executive severance packages and corporate retreats at the same time it receives a taxpayer bailout. And a U.S. Congressional panel grilled the head of bankrupt Lehman Brothers Holdings Inc (LEHMQ.PK: Quote, Profile, Research, Stock Buzz), Richard Fuld, over the fairness of his past pay packages valued in the hundreds of millions of dollars.

Shareholders introduce many ballot initiatives every year, though many are defeated because of lack of support by big investors, which often prefer to sell a stock than try to press for changes at problem companies.

Given how much wealth investors have seen wiped away in the market collapse, this year could be different. Union pension funds, labor groups and other investor organizations are busy strategizing now in preparation for filing proposals they hope to get on ballots during spring proxy season, the time when most corporate annual meetings are held.

Among the hottest issues, says long-time executive pay critic Richard Ferlauto, will be proposals seeking to eliminate what he sees as perverse incentives for corporate leaders that help foster excessive risk-taking by their companies.

Once the financial crisis struck, "we ripped up the game card that we had created for the shareholder season," said Ferlauto, director of pension policy at the American Federation of State, County and Municipal Employees (AFSCME).

"We want to take a new look particularly at the characteristics of pay that focused on short-sighted risk taking," he said.

AFSCME plans to introduce resolutions at an array of companies that would require top managers to hold all of their stock options and restricted stock awards for two years past their tenure with the company.

"It puts the CEO in the same position as the shareholder, and that is focused on long-term value creation," he said. "You can't leave in the middle of a crisis or on the front end and still make off with tens of millions of dollars from your option package."


The group also plans to press some of its perennial issues, such as "say on pay" votes to give shareholders a greater voice on executive pay as well as advocating bans on tax "gross-ups" that use shareholder money to help pay the tax obligations of top executives.

The say-on-pay measures, which aim to give shareholders advisory votes on pay packages, have gotten a mixed reception when they have appeared on proxy ballots, with many of the proposals failing to pass.

Still, next year could be a big year for these proposals as more shareholders are fired up about pay matters. Governance experts say they also think legislation making such votes mandatory will pass the U.S. Congress next year. Democratic presidential candidate Barack Obama is the Senate sponsor of a "say on pay" bill, while Republican rival Sen. John McCain has said he supports the measure.

When good times roll, shareholders often do not pay much attention to calls for corporate reforms. No one likes economic downturns, but the current crisis may spur some investors to take a closer look at such demands for better governance, said Michael Garland, an official at the Change to Win Investment Group, an adviser to labor union pension funds.

"I'm hopeful that based on recent experience there will be stronger support for reining in abusive compensation and enhancing the independence of corporate boards," he said.

Garland said he anticipates greater support for proposals to split the roles of chairman and CEO among different people, a measure designed to improve board independence.

Many banks at the center of the financial storm, Lehman Brothers as well as Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz) and Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research, Stock Buzz), all have one executive in both top roles.

Companies that combine the chairman and CEO jobs typically argue that dividing the roles can cause confusion over who is in charge, and a closely watched proposal by dissident shareholders to split the CEO and chairman at Exxon Mobil Corp (XOM.N: Quote, Profile, Research, Stock Buzz) earlier this year failed.

But governance advocates say such a separation provides checks and balances, arguing these are more important now than ever, given Corporate America's financial straits.

"The crisis may increase support for those proposals," said finance professor Espen Eckbo, director of the Center for Corporate Governance at the Tuck School of Business at Dartmouth. "The major role of the board is to hire, fire and set compensation of the CEO. For the CEO to be chairman of the board is an inherent conflict of interest."

(Editing by Gary Hill)


Thomson Reuters Corporate:  Copyright




This Forum program is open, free of charge, to anyone concerned with investor interests relating to shareholder advisory voting on executive compensation, referred to by activists as "Say on Pay." As stated in the posted Conditions of Participation, the Forum's purpose is to provide decision-makers with access to information and a free exchange of views on the issues presented in the program's Forum Summary. Each participant is 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.

The organization of this Forum program was supported by Sibson Consulting to address issues relevant to broad public interests in marketplace practices, rather than investor decisions relating to only a single company. The Forum may therefore invite program support of several companies that can provide both expertise and examples of performance leadership relating to the issues being addressed.

Inquiries about this Forum program and requests to be included in its 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. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.