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February 5, 2009 Forum Report:

Responsibility for Leadership (with letter of Timothy Smith)



For news reports of the developments referred to in Mr. Smith's letter, see:




From: Gary Lutin
To: Distribution: Reconsidering " Say on Pay"
Cc: Distribution: Scoring Systems ; Distribution: PAIS Project/Amazon Forum
Sent: Thursday, February 05, 2009 4:29 PM
Subject: Responsibility for leadership

Copied below is an open letter that Timothy Smith, Senior Vice President of Walden Asset Management, has asked me to distribute to Forum participants.
I know that many of you may not share all of Mr. Smith's views relating to "Say on Pay," but I think that most of you will agree with his essential point that both the global economy and your own organizations will be better off if informed marketplace participants take the lead in developing a practical response to executive compensation issues, rather than let it be defined by political processes.
Your comments will be welcomed.
             - GL
Gary Lutin
Lutin & Company
575 Madison Avenue, 10th Floor
New York, New York 10022
Tel: 212-605-0335





February 5, 2009


Dear Colleagues in the Business Community involved in

                        Advisory Vote Discussions:


As you know, Walden Asset Management is actively involved in promoting the Advisory Vote on executive compensation.  In addition, I also served as co-chair of the Working Group on the Advisory Vote so I have been deeply involved in this issue for the last several years.


I write with a sense of urgency as the issue of executive compensation is on the front pages of our newspapers and floods our airwaves as never before.


Proposed “solutions to the executive pay issue” now range from the reasonable to the zany, from small specific reforms to large systematic changes.  I am sure some of these “solutions” are causing tremendous angst among many in business dealing with compensation as new Congressional legislation is discussed or Treasury Department regulation is promulgated.


Some of these changes are moving so swiftly that they don’t offer time for rationale dialogue about the implication.


Obviously, a series of missteps by some companies and business leaders have prompted a populist urgency that new solutions need to be enacted and enacted now. Certainly the context for discussing new steps regarding executive compensation has changed significantly in the last 2 months, and even within the last week.


With this backdrop, I write to urge you to reconsider your position on the Advisory Vote.  Business leaders have raised a number of concerns about the Advisory Vote.  Proponents have worked hard to respond as best they could to many of these stated concerns, sometimes successfully, sometimes with continuing quizzical responses from some company management and Boards.


However, it seems clear that the Advisory Vote increasingly fills the space of a moderate, reasonable response to the executive compensation issue and is not the fringe proposal it was perceived to be 2 or 3 years ago.


Other reforms like clawbacks, golden parachutes, golden coffins, even salary caps, are now front and center in the compensation debate.


I believe the time has come for businesses to embrace and put the Advisory Vote into effect.  The business case for companies to move in that direction is orders of magnitude stronger today than even a few months ago when you received your shareholder resolution.


Points worth considering are:


·           The Treasury Department’s position on TARP recipients putting the Advisory Vote in place and their stated goal of moving toward the Advisory Vote with all companies.  We have a clear government policy direction stated.  The handwriting is on the wall!


·           If businesses individually or through industry associations, such as the Chamber of Commerce or Business Roundtable, are seen to be lobbying strongly against the Advisory Vote or trying to hold back the inevitable tide for the Advisory Vote, it will result in further public relations backlash. The public will be further outraged if companies attempt to block reasonable reforms on executive compensation.  While that may not be the way you see it, I believe this will be exactly the way it will play in the press and the public relations results for companies will be problematic at best.


·           There is growing public support and private acceptance in the business community that the Advisory Vote is reasonable, middle-ground and is inevitable. Hewlett-Packard, Occidental Petroleum and Intel recently endorsed Say on Pay.


·           There is flexibility in what a company can put in their proxy statement for a shareholder vote.  Proponents are open to withdrawing the resolution for companies that commit to starting the Vote in 2010 and certainly support companies crafting their own language for the proxy.


·           Many companies have expanded their communications effort with investors to both communicate their philosophy and changes in compensation practices and to gather input and perspective from investors.  This will be extremely helpful in evaluating the level of shareowner support for and confidence in the compensation philosophy and disclosure when a vote occurs.


In summary, the pendulum is swinging toward the inevitability of the Advisory Vote.  I write to urge your company and Board to embrace the Advisory Vote as a fair, middle-ground approach that will help gain credibility and support in the investor community and to step back from the traditional statements of opposition in your proxy. The timing is right for a shift in position by your company and others.



Timothy Smith

Senior Vice President





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.

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