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Crain's New York Business (as published by Factiva), June 25, 2007 article



Executive Pay Report

Slow start for say-on-pay push; Few shareholder proposals prevail; bull market to blame


846 words

25 June 2007

Crain's New York Business


Volume 23; Number 26


(c) 2007 Crain Communications, Inc. All rights reserved.


Both men share a powerful bond: They are Verizon lifers. Bill Jones worked at what is now Verizon Communications Inc. for 30 years, and Ivan Seidenberg, also a longtime employee, has led the firm for nearly a decade.

``He's a good company man,'' says Mr. Jones.

But Mr. Jones has major problems with how the chief executive gets paid. Over a five-year period ending in 2005, he says, Mr. Seidenberg was awarded $75 million in compensation while

Verizon's stock fell by nearly 27%. Earlier this year, Mr. Jones, 67, a former managing director at Verizon predecessor Nynex and now president of the Association of BellTel Retirees, introduced a resolution saying that shareholders should get the right to vote every year on the board's rationale for paying top people.

The call from Verizon shareholders may prove to be little more than a cry in the wilderness. The say-on-pay proposal squeaked through, gaining 50.2% of the votes cast at the company's annual meeting last month. Verizon hasn't decided whether it will adopt the resolution, but said it would ``further consider'' its pay policies. The public may not really know whether the retirees' push had any real impact until Verizon issues its next proxy statement to shareholders in early 2008.

The anticlimactic result is typical of what happened at dozens of blue-chip companies this spring. Shareholder activists put forth nearly identical say-on-pay proposals, but only a handful won majority votes. On average, the resolutions received about 42% of the votes, indicating that despite public furor over spiraling executive pay, most investors are inclined to let boards figure out ways to better align pay with performance.

Source of frustration

``executive pay is one of the most frustrating issues for activists,'' said Ed Durkin, director of corporate affairs at the United Brotherhood of Carpenters and Joiners, shortly before the annual meeting season swung into gear this spring.

Although few say-on-pay resolutions carried, advocates say they will try again next year. The prevailing political winds also support their efforts, since the U.S. House of Representatives earlier this year approved a bill requiring companies to hold say-on-pay votes. The Senate hasn't yet taken up the matter.

``It takes time to build up a majority,'' says Timothy Smith, director of socially responsive investing at Walden Asset Management.

Say-on-pay resolutions represent the latest and most sophisticated attempt by activist investors to influence executive pay. The proposals say that companies should allow investors to hold a nonbinding vote every year on the work of the board's compensation committee. If the work is found wanting, the board would be asked to go back to the drawing board. Such votes have been held in Europe for several years.

While many investors find the idea persuasive, an even larger number have so far declined to back it. Big mutual fund managers have been particularly cool toward say-on-pay. These institutions traditionally have been reluctant to join activist causes because they don't want to alienate companies that might hire them to manage their employee retirement plans.

In an effort to pressure these firms, the American Federation of State, County and Municipal Employees earlier this month issued a list of mutual funds that it said consistently backed proposals to increase executive pay and named such big firms as AllianceBernstein, Barclays Global and AIM.

Activists have scored a few victories. Earlier this month, TIAA-CREF, a big insurer and money manager, said it would allow its policyholders to vote on its executives' compensation plans. And a number of large companies--including Pfizer, Prudential Financial and Schering-Plough--are in talks with advocates to explore ways to adopt say-on-pay voting.

Getting the word out

in the meantime, Mr. Jones is busy traveling to advise labor unions and retiree groups on how they can replicate his group's accomplishment at Verizon. ``It's time for the company to listen to its shareholders on the matter of executive pay,'' he says. ``We sent a strong message.''

He has also teamed up with investment banker and activist Gary Lutin to hold investor forums examining Verizon executives' pay. Mr. Jones is also closely watching to see if Verizon will enact his group's say-on-pay proposal. After its annual meeting, Verizon stated that it ``will further consider its policies in light of the high level of shareholder interest,'' but Mr. Jones hasn't heard anything since.

``If they don't adopt the plan, we'll be right back,'' he promises.


Photo Caption: BILL Jones, a retired veteran of what is now Verizon, questions the way the company chief gets paid. ; Ivan Seidenberg, Verizon's chief executive, was awarded $75 million in compensation over a five-year period. scorecard: Recent say-on-pay proposals at New York companies. Source: American Federation of State, County and Municipal Employees

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