Bailed-Out Firms Clamber to
Satisfy Say-on-Pay Proviso
Post Staff Writer
Wednesday, April 8, 2009; Page A11
NEW YORK, April 7 -- Nearly 400 companies
that have accepted taxpayer funds are working to meet a new federal mandate
that allows shareholders to vote on executive compensation packages at
annual meetings this spring.
The rule, contained in the stimulus package
adopted in February, represents a significant expansion of a fledgling
say-on-pay movement that has taken hold in recent years at a handful of
companies. Emboldened by the federal requirements, activist investors are
pushing to have similar measures adopted at all public companies. The issue
has had the backing of key legislators and appeared headed for approval this
year. But yesterday, a key congressional committee said more stringent
measures may now be needed instead.
"Say on pay might be too mild at this
point," said Steven Adamske, spokesman for the House Financial Services
Committee led by Rep. Barney Frank (D-Mass.).
The committee expects to deal with executive
compensation as part of regulations being considered to address broad risks
in the financial system, and it is unclear whether say on pay will be
included in that effort, Adamske said.
Despite say-on-pay's advance, some question
just how meaningful the shareholder votes will be. The measure gives
shareholders an up-or-down vote on executive compensation packages, and the
results are nonbinding.
Companies subject to the mandate, mostly
banks participating in the Troubled Assets Relief Program, expected the
votes would be enforced beginning next year and were taken by surprise when
the Securities and Exchange Commission in late February issued guidelines
requiring votes at all firms filing their proxy statements after the signing
of the stimulus package Feb. 17. Many had to scramble to comply even as the
annual statements were headed to the printers, according to compensation
lawyers and consultants.
Mark Borges, a principal at Compensia, a
compensation consulting firm, said nearly 80 percent of the 211 TARP banks
that have filed proxies are putting the vote on the ballot in the barest
form required by law.
"They're pretty perfunctory. It's not real
clear what you're asking people to vote on," he said. "Some say, 'we will
take into consideration the outcome of the votes.' Some companies are
completely silent, which kind of leads you to wonder if they're going to do
anything at all."
But advocates say the votes have led to
better corporate governance practices overseas.
"Once boards get used to this process, they
realize that the way to avoid embarrassment at an annual meeting is to get
early notice of concerns by simply talking to their major shareholders,"
said Stephen Davis, a fellow at the Yale University's center for corporate
Some compensation experts worry shareholders
may vote their emotions in this populist environment, rather than analyze
hundreds of proxy statements in a matter of weeks. In addition, many
investors may not have the wherewithal to determine what constitutes an
appropriate compensation plan; despite SEC rules to increase disclosure in
plain language, proxies can be peppered with dense techno-speak. Those
investors, some say, may simply follow the recommendation of proxy advisory
Four of 23 recommendations issued by proxy
adviser RiskMetrics Group tell shareholders to vote against executive pay
American Federation of State, County and
Municipal Employees, the largest union representing public employees, said
it is sifting through proxy statements and will vote against compensation
packages at Citigroup, Bank of America and American International Group,
which caused a public uproar last month when it paid bonuses to employees in
the unit responsible for its meltdown and billions in government injections.
"We're going to send a message about
compensation," said Richard Ferlauto, director of pension-investment policy
at AFSCME, a leader in pushing for the measure.
The vote at Bank of America, Ferlauto said,
is in protest of $3.6 billion in bonuses paid out to Merrill Lynch employees
shortly before it was acquired by the bank Jan. 1. Ferlauto said AFSCME has
made clear to companies what aspects of compensation it is objecting to, and
will post the logic behind its votes online.
Bank of America declined to comment. In its
proxy, the bank highlights several features in executives' 2008 pay
packages, including no year-end cash or equity incentive compensation, in
asking for shareholder approval.
Citigroup is being targeted, Ferlauto said,
because of multimillion-dollar retention awards to its top executives
despite a loss of nearly $19 billion in 2008. Citigroup chief executive
Vikram Pandit and Gary Crittenden, who recently stepped down from his
position as chief financial officer, received $2.5 million in equity
retention awards in 2008, according to Citigroup's proxy. The three other
executives received $4.6 million to $6.6 million in retention pay, in the
form of deferred cash compensation and stock awards.
A Citigroup spokesman said "significant
thought and changes" have been applied to its compensation practices,
including a procedure to recoup executive compensation that later proves to
have been based on inaccurate information. The equity retention grants, the
spokesman added, were determined in 2007 and paid out in early 2008.
An AIG spokeswoman said it has taken steps
to restrict pay, such as a 56 percent reduction in compensation for its top