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For background information on the meeting reported below, including links to views on issues raised by Messrs. Durkin and Gordon, see

For details of the referenced Pearl Meyer survey of corporate compensation executives, see


IR Magazine, October 22, 2009 article


Crossbow logoPeople on the street

Investors and directors call for say-on-pay dialogue

Oct 22, 2009

Companies should improve disclosure. Investors need to give input. Better late than never

Compensation is in the headlines again, with US pay czar (who doesn’t like to be called czar) Kenneth Feinberg slashing pay at the biggest TARP recipients.

Down in the trenches where IROs and corporate secretaries are – or should be – preparing their compensation battle plans, there’s more gloomy news. According to survey results this week from Pearl Meyer & Partners, a compensation consulting firm, few companies are preparing for say on pay or are planning to do so in the next six months.

An advisory shareholder vote on pay is expected to be approved by the Senate in time for the 2010 proxy season, as part of either the Corporate and Financial Institution Compensation Fairness Act, passed by the House this summer, or Senator Charles Schumer’s shareholder rights bill.

Despite this legislative juggernaut, just 7 percent of the 231 companies in the Pearl Meyer survey say they’re very concerned about the say-on-pay vote. Two thirds say they haven’t taken any steps to prepare, though around one third say they plan to do so in the next six months.

At a say-on-pay forum yesterday in New York, institutional investors and corporate directors demanded action: better compensation disclosure and more dialogue on both sides.

The forum, held by the New York chapter of the National Association of Corporate Directors (NACD), attracted dozens of corporate directors and institutional investors, including some of the biggest US pension funds, to the Third Avenue headquarters of pension fund TIAA-CREF.

Say on pay on the way
There was general agreement that say on pay is coming, probably with smaller firms exempted.

Ed Durkin, director of corporate affairs for the United Brotherhood of Carpenters, which has proposed a triennial vote only for the largest companies, implied it wasn’t too late for Washington to change course on say on pay. He challenged companies and investors to ‘let the decision-makers know that this could be a valuable tool if it’s done right, but it could also result in a lot of wasted time and resources.’

Speakers were divided over the potential for meaningful discussion or indeed any change coming from say-on-pay votes.

‘There has been improved communication and better disclosure but we’re not there yet,’ said Hye-Won Choi, TIAA-CREF’s head of corporate governance. ‘Boards think shareholders are micromanaging, and shareholders think boards aren’t listening,’ she added.

Ken Bertsch, executive director of corporate governance at Morgan Stanley Investment Management, pushed for better disclosure, and suggested looking down under to learn how: ‘Australian companies do it better. Part of it is graphic. It’s easier for shareholders to see what companies are doing.’

Donna Anderson, head of global corporate governance at T Rowe Price, pointed to JPMorgan’s proxy as best practice. It may not measure up to a checklist assessment, but it is ‘a real narrative.’
The UK was repeatedly held up as an example. ‘We’ve had say on pay for six or seven years and the earth hasn’t fallen apart,’ declared audience member Daniel Summerfield, responsible investment adviser for the Universities Superannuation Scheme (USS), one of the UK’s largest pension funds. ‘What has resulted is a much better interaction between boards and shareholders.’

Concerns about violating Reg FD, which have stood in the way of private meetings of US directors and shareholders to talk about executive pay, have been overstated, he added.

Walking softly the UK way
Summerfield later suggested that say on pay was essential to improving corporate transparency: ‘If you don’t have this stick to beat companies over the head with, then the communication channels won’t open up.’
Mary Louise Weber, assistant general counsel at Verizon, which voluntarily adopted say on pay in 2007, agreed that it has increased dialogue.

‘Along with the say-on-pay vote, there was a renewed commitment to engaging more with institutional holders on the part of the board,’ Weber explained. For example, the compensation committee’s independent compensation consultant began regular calls with institutional investors, soliciting feedback and reporting back to the committee. ‘There’s no question that it has generated more conversation,’ she said.

Panelists agreed that early dialogue is important and post-proxy conversations are needed to uncover the nuance behind the ‘up-or-down’ proxy vote. But aside from that oblique reference to Verizon’s calls with investors, little was said about the form the vaunted say-on-pay dialogue could take.

Nina Henderson, lead director at Del Monte Foods and a director at Pactiv and AXA Financial, said she encourages investor days and likes board members to attend. ‘I want to hear the questions investors ask,’ she said.

Durkin, who has led wide-scale engagement initiatives over many years, allayed directors’ fears about facing off with institutional shareholders. ‘We don’t need to talk to the comp committee. We want the corporate secretary or HR or whoever had their hands all over the CD&A,’ he said.

The forum audience was comprised of company directors, corporate secretaries, institutional investors and consultants of all stripes. One PR veteran privately suggested the say-on-pay dialogue might lead to communications pros being recruited as board members. ‘Boards don’t need any more accountants. What they need is more awareness of image and crisis management,’ he confided.

Too much to do
Durkin’s main argument against universal annual say on pay is that investors don’t have enough resources for all the analysis that will be needed. The Carpenters funds, for example, have more than 3,600 companies, and Durkin says the research would have to be more than a checklist approach.

Anderson admitted T Rowe Price would be ‘triaging’ companies’ pay plans, with ‘no’ votes reserved for the 20 percent or so that are ‘real outliers’ – the ‘compensation cavemen.’

There was discussion about advisory firms like RiskMetrics, and whether they would be the ultimate deciders of pay questions. The large investors present disputed this notion. ‘They have a role to play, but reports of their level of influence and power are overblown,’ Choi said. ‘We subscribe to all the major ones, but we have our own policies.’ Anderson said she ‘took issue with the idea that RiskMetrics is controlling the vote.’

Jim Melican, chairman of PROXY Governance, a proxy adviser, responded from the audience, arguing that few institutional investors have the capacity to analyze proxies and come to decisions themselves. ‘There may be 50 institutions that really have devoted any kind of staff support to analyzing governance – out of the thousands in the US,’ he said.

‘Thoughtful institutional investors who actually care about the issue and want to do the right thing are not going to be the majority,’ agreed Kenneth Kopelman, partner at Kramer Levin Naftalis & Frankel and president of NACD’s New York chapter.

Choi told how TIAA-CREF’s voting process is integrated with its investment management process. That may be the exception among institutions. ‘There is a wide gulf between voting and portfolio managers,’ Kopelman suggested.

Henderson recently completed her term as a director of Royal Dutch Shell. She underlined the conclusion about lessons from the UK: ‘Say on pay created additional dialogue, and things were brought up that were much broader than pay. Also, it has brought portfolio management and governance together. Companies meet with both, sometimes in the same room.’
The exhortation to companies from Henderson: ‘Have the discussion. Get out in front, talking and getting feedback.’

By Neil Stewart






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