Investor Relations Magazine, April 2, 2009
Hermes to US: do
one-on-ones about exec comp
Webinar focuses on
say-on-pay lessons from the UK
Today’s webinar from Georgeson and law firm Cleary Gottlieb looked for
lessons about say on pay from the UK, where companies have had advisory
votes on compensation since 2003.
Georgeson’s senior VP of corporate governance, Rhonda Brauer, and Mary
Alcock, Clear Gottlieb’s executive compensation counsel, spent an hour
quizzing Bess Joffe, who handles US engagement for Hermes Equity Ownership
Services (HEOS). HEOS represents BT’s pension fund, which is the UK’s
TARP firms now preparing for a say-on-pay vote should be taking questions
about compensation from as many shareholders as possible, Joffe urged. She
suggested the compensation committee head as the ideal person to take the
hot seat. ‘Perhaps [companies] should post contact information on the web,
really striving to make the right, relevant people available for
shareholders to talk to,’ she said.
Alcock suggested it’s too late for ‘meaningful engagement’ this proxy season
because compensation plans have been set. She also raised concerns around
selective disclosure and proxy solicitation rules.
Consensus was that most of the dialogue should happen outside the proxy
season in preparation for next year’s say-on-pay votes. ‘That’s when we have
the best conversations,’ said Joffe, who also said US companies should
follow the UK example and issue confidential ‘consulting documents’ to major
shareholders well ahead of their AGMs.
Joffe insisted that one-on-one engagement is the best means – and biggest
advantage – of the UK’s say on pay scheme, even though a UK company’s
remuneration report is typically clearer and ‘more digestible’ than a US
CD&A: ‘One thing that’s difficult to ascertain from reading a CD&A is the
philosophy of the compensation committee.’
Brauer pointed out that the UK has around 1,100 companies doing say-on-pay
votes compared to 14,000 that could be covered by potential US legislation.
That scale, combined with US investors being more dispersed geographically
and by approach, could make a UK-style dialogue tough. She proposed it would
be more sensible for the US to make say-on-pay mandatory for the S&P 1500 or
the Russell 3000 but not for the whole universe of issuers.
Brauer also cited a number of other ways that companies are talking about
pay with shareholders: Pfizer and Ingersoll-Rand have held meetings with
their top 20 to 25 shareholders; Schering-Plough planned to send a survey
about say on pay with its next proxy; some companies like Amgen are using
10 questions for evaluating CD&As to help investors; and
Prudential has a new
section of its website devoted to compensation, including a link for
shareholders to provide feedback.
Joffe expressed admiration for all these initiatives but said none can
replace an advisory vote: ‘The vote really acts as a lever to effect change
if we feel the conversations with the company haven’t been successful, or if
they haven’t taken on board the changes we’ve suggested.’ She added that the
UK’s pay vote has ‘enhanced dialogue not only on compensation issues but on
much broader issues. It has opened up channels of communication. [We] get a
better sense of the quality of thinking at the board level.’
The webinar is archived on
By Neil Stewart