Another Majority Vote for “Say on Pay”
Submitted by: Carol Bowie, Governance Institute
Valero Energy recently disclosed results for the Advisory Vote on Compensation proposal that its shareholders voted on this year – the tally shows support of 53.7 percent (based on votes cast for and against), up from 53 percent support for the same proposal in 2007. Both years’ resolutions were submitted by the Unitarian Universalist Association of Congregations (UUA).
Valero thus becomes the tenth company on this year’s list of majority supported “say on pay” shareholder proposals. The list stopped at eight firms in 2007. Under its bylaws, Texas-based Valero counts abstentions when tallying results for shareholder proposals, and by its reckoning the measure did not pass. Valero spokesman William Day told Risk & Governance Weekly that, so far, the company has no plans to address the proposal.
In another distinction, the Valero resolution is the second to get majority backing from votes cast for two years in a row. The other was voted on at Ingersoll Rand. The measure also garnered 50.7 percent support at computer maker Apple this year after obtaining a near-majority (46.6 percent) in 2007.
While support declined somewhat at several financial firms that had the resolution on their ballots over the last two years, overall “say on pay” shareholder proposals have averaged about 42 percent support so far this year over more than 50 meetings where votes have been reported, according to RiskMetrics data – virtually the same level as 2007. Only two votes remain pending for fall meetings, at Procter & Gamble and Oracle. Proponents may currently be more focused on this year’s political election, which may give a boost to their push for advisory pay votes. According to the draft Democratic national platform released on Aug. 7, for example, party leaders “will ensure shareholders have an advisory vote on executive compensation, in order to spur increased transparency and public debate over pay packages.”
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Another Majority Vote for “Say on Pay”
Submitted by: Carol Bowie, Governance Institute
Valero Energy recently disclosed results for the Advisory Vote on Compensation proposal that its shareholders voted on this year – the tally shows support of 53.7 percent (based on votes cast for and against), up from 53 percent support for the same proposal in 2007. Both years’ resolutions were submitted by the Unitarian Universalist Association of Congregations (UUA).
Valero thus becomes the tenth company on this year’s list of majority supported “say on pay” shareholder proposals. The list stopped at eight firms in 2007. Under its bylaws, Texas-based Valero counts abstentions when tallying results for shareholder proposals, and by its reckoning the measure did not pass. Valero spokesman William Day told Risk & Governance Weekly that, so far, the company has no plans to address the proposal.
In another distinction, the Valero resolution is the second to get majority backing from votes cast for two years in a row. The other was voted on at Ingersoll Rand. The measure also garnered 50.7 percent support at computer maker Apple this year after obtaining a near-majority (46.6 percent) in 2007.
While support declined somewhat at several financial firms that had the resolution on their ballots over the last two years, overall “say on pay” shareholder proposals have averaged about 42 percent support so far this year over more than 50 meetings where votes have been reported, according to RiskMetrics data – virtually the same level as 2007. Only two votes remain pending for fall meetings, at Procter & Gamble and Oracle. Proponents may currently be more focused on this year’s political election, which may give a boost to their push for advisory pay votes. According to the draft Democratic national platform released on Aug. 7, for example, party leaders “will ensure shareholders have an advisory vote on executive compensation, in order to spur increased transparency and public debate over pay packages.”
What are your views on "say-on-pay" this year. Please let us know.
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Another Majority Vote for “Say on Pay”
Submitted by: Carol Bowie, Governance Institute
Valero Energy recently disclosed results for the Advisory Vote on Compensation proposal that its shareholders voted on this year – the tally shows support of 53.7 percent (based on votes cast for and against), up from 53 percent support for the same proposal in 2007. Both years’ resolutions were submitted by the Unitarian Universalist Association of Congregations (UUA).
Valero thus becomes the tenth company on this year’s list of majority supported “say on pay” shareholder proposals. The list stopped at eight firms in 2007. Under its bylaws, Texas-based Valero counts abstentions when tallying results for shareholder proposals, and by its reckoning the measure did not pass. Valero spokesman William Day told Risk & Governance Weekly that, so far, the company has no plans to address the proposal.
In another distinction, the Valero resolution is the second to get majority backing from votes cast for two years in a row. The other was voted on at Ingersoll Rand. The measure also garnered 50.7 percent support at computer maker Apple this year after obtaining a near-majority (46.6 percent) in 2007.
While support declined somewhat at several financial firms that had the resolution on their ballots over the last two years, overall “say on pay” shareholder proposals have averaged about 42 percent support so far this year over more than 50 meetings where votes have been reported, according to RiskMetrics data – virtually the same level as 2007. Only two votes remain pending for fall meetings, at Procter & Gamble and Oracle. Proponents may currently be more focused on this year’s political election, which may give a boost to their push for advisory pay votes. According to the draft Democratic national platform released on Aug. 7, for example, party leaders “will ensure shareholders have an advisory vote on executive compensation, in order to spur increased transparency and public debate over pay packages.”
What are your views on "say-on-pay" this year. Please let us know.
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Thursday, May 22, 2008 |
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Explorations in Executive Compensation
Submitted by: Gary Hewitt, Marketing
This week RiskMetrics Group introduced a new research initiative that looks at the always complex issues surrounding executive compensation. The project, Explorations in Executive Compensation is offered in the hopes of sparking constructive dialogue and stirring new ways of thinking about this issue - and in the process help move investors and companies towards a common language for creating, evaluating and communicating about executive pay systems.
The project initially consists two sets of white papers. The first set, Considerations, defines and puts into context the basic elements of U.S. executives' pay packages, with special attention paid to emerging key considerations for investors in evaluating pay and equity plans in particular.
The second set, Innovations, offer a pair of new methods of looking at critical issues in executive pay: peer group benchmarking and and the degree of alignment between the risks borne by investors and by shareholders.
We're excited about this opportunity to advance dialogue and transparency on compensation issues - and are eagerly seeking your feedback on the ideas put forth in the project. Explorations in Executive Compensation is posted online at www.riskmetrics.com/compensation, with an interactive executive summary and online tools to explore the new benchmarking and risk profiling methodologies. Please visit the site and let us know what you think.
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Monday, May 5, 2008 |
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Aflac’s Pay Practices Get 93% Support
Submitted by: Ted Allen, Head of Publications
In the first “say on pay” vote by a U.S. public company, Aflac investors gave 93 percent support to the firm’s executive compensation practices, according to news reports.
There was only 2.5 percent opposition at Aflac’s May 5 annual meeting. The Columbus, Georgia-based insurer decided to hold an annual advisory vote after receiving a shareholder proposal on the issue in late 2006.
Aflac CEO Daniel Amos earned a total of $14.8 million, and had approximately $70 million in stock options vest in 2007, according to the company’s compensation report. Amos’ incentive-based pay is entirely performance-based, the company says, noting that since he took the post of CEO in 1990 the firm’s total shareholder returns have exceeded 3,867 percent. Aflac’s stock price has risen about 126 percent since early 2003.
Six other U.S. companies, including Verizon Communications and bond insurer MBIA, have agreed to hold non-binding pay votes. Meanwhile, investors have filed more than 80 proposals this season asking other firms to take this step. “Say on pay” proposals have averaged 42 percent support at 21 companies so far, earning 50.7 percent support at computer maker Apple, and majority support at printer manufacturer Lexmark International, according to RiskMetrics Group data.
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Friday, May 2, 2008 |
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Analysis: Early Season Trends
Submitted by: Subodh Mishra, Governance Institute
Resolutions calling for advisory votes on pay have received less support at a number of firms this year versus last, according to a RiskMetrics Group analysis of preliminary vote results through April 30.
Governance watchers suggest that a number of factors may underlie the declining support at those firms, though the average support level for all such “say on pay” proposals correlates to that in 2007, based on tallies collected so far.
This year, pay vote proposals have averaged 42.1 percent support at 21 companies so far. That is in line with results for calendar 2007, when 52 such proposals received 42.5 percent average support. Surprisingly, however, the measure received less support at a number of financial companies this season, including Citigroup, Morgan Stanley, Wachovia and Merrill Lynch, where many observers expected the measure would fare better than last year given investor anger over subprime-related losses.
Of the 11 companies where investors voted on the resolution both this year and last, seven have seen declines in support that range from one-tenth of a point at AT&T to 9.6 percentage points at Merrill Lynch. Pay vote proposals received increased support at just five firms, meanwhile, including at Apple (Editor’s Note: this is based on an estimated vote tally of 51 percent, given that the company announced the proposal received majority support, without disclosing the specific votes or percentages; RiskMetrics has recorded a preliminary tally of 51 percent at Lexmark International for the same reason). Defense contractor Lockheed Martin and aerospace giant Boeing each saw 3.9 percentage-point gains.
To view some of the early season trends, please Download file
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Submitted by: Subodh Mishra, Governance Institute" »
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Friday, February 1, 2008 |
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French CEOs Have Highest Pay in Europe, Report Shows
Submitted by: L. Reed Walton, Publications
French CEOs earn the most in Europe, though their pay is still far below the average compensation for U.S. executives, according to the Hay Group, a human resources firm.
French chief executives received the highest median total direct compensation--including salary, bonus, and fair value of long-term incentive awards--according to the survey of compensation at the 50 largest European companies, “How Chief Executives Are Paid,” released by Philadelphia-based Hay Group in January. Numbers were based on the most up-to-date financial reporting figures available from each company, the study noted.
Companies in France also provide the largest long-term incentive opportunities. The most popular long-term incentive plans in Europe were stock options and performance shares, with nine of the surveyed French companies granting the former and two the latter.
The report indicated that companies in the United Kingdom pay their chief executives higher base salaries on average. The total direct pay might have been lower because, all of the U.K. companies surveyed had performance-based share plans. Less than half of those firms have stock option plans, and less than a quarter have matching bonus plans, according to the Hay Group.
Median total cash for European CEOs was about €3.3 million with total direct annual pay (total cash plus the fair value at the award date of any long-term incentive bonuses) averaging about €5 million.
German companies paid the highest bonuses in Europe, with a median payment of 185 percent of salary. U.K. firms were in second with a median bonus payment of 160 percent of salary. By comparison, the median U.S. executive receives bonuses of 300 percent of his or her base pay, the survey noted.
Seventeen European companies reported using deferred bonuses to compensate their CEOs--by which the executives’ bonus payments are held for a period then paid, most commonly in the form of shares. Two companies in the survey--both German--use deferred cash bonus plans, but none of the other European firms do.
The Netherlands had the lowest rates of total CEO compensation. However, the CEO of a Dutch company, Jeroen van der Veer of Royal Dutch Shell, received the fourth-highest total direct compensation of any European chief executive, the report notes. Arun Sarin of U.K.-based Vodafone Group had the highest, followed by executives at GlaxoSmithKline and BP, also based in the U.K.
Dutch investor advocates have warned domestic companies against upward-spiraling CEO pay. In November, the Dutch institutional investor association, Eumedion, sent a letter to the 75 largest companies in the Netherlands urging them to use U.S. companies cautiously in their pay-benchmarking peer groups.
According to the survey, the median total direct CEO compensation at the largest 50 U.S. companies by market capitalization is around €13 million (about $19.4 million). The highest-paid American CEO in the survey (Ed Whitacre Jr. of AT&T) had a total direct compensation in 2006 of about €7.3 million above Sarin, the highest-paid European CEO.
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Wednesday, January 30, 2008 |
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2008 Preview: Pay Proposals
Submitted by: Subodh Mishra, Publications
Investor calls for advisory votes on pay and other measures to reform executive compensation will resonate in 2008 as U.S. capital markets slide in the face of recession.
A network of investors, led by Boston-based Walden Asset Management and the American Federation of State, County and Municipal Employees, has so far filed more than 90 proposals calling for an advisory vote on pay, compared with 44 such resolutions at this time last year.
The network’s membership--which ranges from retail shareholders to pension fund giants including the California Public Employees’ Retirement System--also has grown from 2007. Nearly 75 investors have come together this year to file the measure at primarily large and medium-sized companies.
“Companies receiving the proposal include those where shareholders believe there has been non-performance, options backdating, and other major issues that shareowners need to address,” Timothy Smith, senior vice president at Walden Asset Management, told Risk & Governance Weekly. Abbott Laboratories, Capital One, Lexmark and Wells Fargo are among those targeted.
Spokeswomen at Capital One and Wells Fargo declined to comment on the filings, while officials are Abbott Laboratories and Lexmark did not immediately respond to requests for comment.
The proposal, dubbed “say on pay,” also will be filed at companies such as General Electric that are generally viewed positively by shareholders with respect to executive compensation and other facets of governance, according to Smith. “We believe [such companies] should provide leadership in adopting an advisory vote” on pay, said Smith, who also noted that dialogue on the issue has increased this year.
Governance watchers have in recent months called for increased communication between issuers and shareholders on a range of issues including compensation. “Improved communication and dialogue … may provide compensation committees with a broader perspective and balance in relation to the views provided by management,” wrote Weil, Gotshal & Manges attorneys Ira M. Millstein, Holly J. Gregory, and Rebecca C. Grapsas in a memo to clients earlier this month. “It may also lessen the push for an advisory vote on executive compensation.”
Last year, 20 companies and investors came together to form the “Working Group on the Advisory Vote on Executive Compensation” to study the issue.
Three companies--Par Pharmaceuticals, Verizon Communications, and Aflac—have so far taken steps to allow for advisory votes on pay following shareholder proposal filings in 2007 calling for the right. Aflac, the Georgia-based insurer, will be the first to give shareholders the vote when it holds its annual meeting on May 5. The company originally planned to allow for the vote in 2009.
Concerns over compensation in 2008 will not be limited to calls for advisory votes on pay, though. Novel proposals will include demands for companies to adopt a policy on the use of so-called 10b5-1 stock-selling plans, and those seeking to limit or bar tax gross-ups for senior executives. Another resolution seeks to place limits on executive employment agreements.
First year proposals generally do not fare as well as those in their second and third year, though this year may prove an exception.
“As the market declines, there’ll be more support for compensation reform,” notes Charles Elson, director of the University of Delaware’s Weinberg Center for Corporate Governance. “The downturn will only fuel the efforts of shareholders.”
Reports of record Wall Street bonuses at financial firms that sustained considerable losses in 2007 as a result of exposures to mortgage-related investments are likely to stimulate broad support for proposals tied to executive pay. Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns together awarded roughly $39 billion in year-end bonuses, exceeding the $36 billion distributed in 2006 when the industry reported all-time high profits, Bloomberg News reported.
CEOs at Morgan Stanley and Bear Stearns forfeited bonuses in light of bad bets on subprime mortgage-backed securities. That may mollify shareholders who are expected to vote on a range of proposals including those calling for strengthened links between pay and performance. Labor funds, led by the United Brotherhood of Carpenters’ and Joiners of America, have so far filed more than 50 such resolutions at spring annual meetings.
Continue reading "2008 Preview: Pay Proposals
Submitted by: Subodh Mishra, Publications" »
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Friday, December 7, 2007 |
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Pay Consultant Concerns Debated
Submitted by: L. Reed Walton, Publications
U.S. lawmakers this week heard testimony from investor representatives who called for more disclosure from companies about other work done by consulting firms that advise boards on executive pay.
The hearing of the House Committee on Oversight and Government Reform was called by panel Chairman Henry Waxman, a Democrat from California, to determine whether compensation consultants are likely to recommend excessive executive pay in exchange for lucrative contracts on other services for companies. The Dec. 5 hearing coincided with the release of a report by Democratic lawmakers drawing a link between egregious pay practices and the competition by pay consultants for other contracts.
Labor and state pension funds previously have expressed concern that work done by compensation consulting firms outside of advising boards on executive pay may compromise a consultant's independence. The AFL-CIO and other labor funds filed nine proposals on this topic this year--three of which went to a vote--and plan to file similar resolutions for 2008.
In testimony to lawmakers, shareholder advocates blamed rising executive pay on the Securities and Exchange Commission's failure to require U.S. companies to tell their investors what services outside of pay advice these consulting firms provide. The SEC's 2006 compensation disclosure rules do not require issuers to list the outside services provided by pay consulting firms or how much money was paid for these services.
"The SEC betrayed investors by not going far enough in their disclosure rules," said Daniel Pedrotty, director of the AFL-CIO's office of investment. "The board is relying on advice that could be conflicted," he added, "and shareholders should know about that."
Meredith Miller, assistant treasurer for policy in the Connecticut State Treasurer's Office, which oversees the state's pension funds, said corporate disclosure on pay consultants has been "woefully inadequate."
Competing for contracts that can pay much more than compensation consulting alone, Miller said, puts consultants "on the exact same path" toward being totally beholden to top management as auditors were before the accounting scandals at Enron and WorldCom.
"One of the lessons of Enron is that when an auditor has a business relationship with companies, their independence is questionable," said Rep. Elijah Cummings, a Democrat from Maryland.
Republican lawmakers criticized the comparison between audit firms that fraudulently signed off on company accounts and compensation consultants who do other projects for the company, and questioned the need for disclosure to shareholders.
"Shareholders rely on audit reports, but not on compensation consultant reports. Only directors rely on that," said Rep. Tom Davis of Virginia, ranking minority member of the committee.
Houman Shadab, a research fellow at George Mason University and a witness at the hearing, agreed. "Having companies disclose information that is not material to deciding whether to purchase securities … would flood the market with confusing information," Shadab said.
During the hearing, many Republicans questioned the need for additional disclosure when the compensation committee is already required in many instances to be free of ties to executives. Since 2003, the New York Stock Exchange has required companies to have a pay committee that is composed entirely of independent directors.
In 2004, the National Association of Corporate Directors released a report stating that firms providing pay advice to board compensation committees "should not be retained by the company in any other capacity."
Rep. Virginia Foxx, a Republican from North Carolina, said that if shareholders were truly upset about compensation consultant disclosure, they would have contacted lawmakers prior to the hearing. Democratic Rep. Peter Welch of Vermont acknowledged that he had not heard from shareholders about the issue, either.
However, Miller and Pedrotty said they have approached the SEC and individual companies. The Connecticut State Treasurer and the AFL-CIO joined 11 other institutional investors in October 2006 in writing letters to the 25 largest U.S. companies, urging them to exceed the SEC's reporting requirements on compensation consultant independence.
Miller said that 11 companies out of the 25 that received letters now have an outright ban on compensation consultants doing other services for the same company. In December 2006, General Electric agreed to provide additional disclosure in response to a proposal by the AFL-CIO.
Continue reading "Pay Consultant Concerns Debated
Submitted by: L. Reed Walton, Publications" »
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Friday, November 2, 2007 |
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Verizon Adopts "Say on Pay"
Submitted by: L. Reed Walton, Publications
In response to shareholder pressure, Verizon Communications has agreed to hold an annual advisory vote on executive compensation in 2009.
The decision by Verizon’s board comes after shareholders of the New York-based telecommunications and Internet service company gave 50.2 percent support to a resolution asking for a non-binding vote on executive pay policies at the firm’s annual meeting in May.
Verizon is the second U.S. public company to adopt an annual pay vote, known as “say on pay,” a right given to investors by law in markets such as the United Kingdom and Australia.
Insurance company Aflac received a similar resolution, but decided to adopt “say on pay” in February before the matter went to a shareholder vote. Aflac, like Verizon, will hold the first advisory vote on executive pay policies at its 2009 annual meeting.
According to a Nov. 1 press release, Verizon’s presiding director, Sandra O. Moose, said that the board’s decision will “further strengthen Verizon’s corporate governance practices.”
A number of Verizon shareholders, including the American Federation of State, County, and Municipal Employees (AFSCME), Walden Asset Management, and the North Carolina and Connecticut state pension fund officials, co-signed an Oct. 17 letter that urged the directors to consider adopting an advisory vote policy.
“Giving shareholders an opportunity to vote on executive pay is a simple and easy way to improve Verizon’s corporate governance policies,” the investors’ letter read. “Since the vote is not binding, it will give us a voice in the process without allowing us to micromanage the [c]ompany.”
The Amalgamated Bank, which invests for labor interests through its LongView funds, sent a letter on Oct. 31 that called for an annual advisory vote. The letter criticized past pay practices at Verizon, where five directors received between 7 and 11 percent opposition in May amid an AFL-CIO “vote no” campaign over CEO Ivan Seidenberg’s compensation.
The company initially objected to the “say on pay” proposal, filed by C. William Jones, president of the Association of BellTel Retirees. Verizon argued in its proxy statement that an up-or-down vote on pay would be a blunter instrument than simply communicating grievances over pay directly to the board.
After the proposal received majority support, however, the board began a dialogue with shareholders--including Jones--according to the company’s Nov. 1 press release. Aflac went through a similar process of consulting with large investors before deciding to adopt “say on pay.”
“We believe that it is important to engage in an ongoing dialogue with shareholders and others,” Verizon presiding director Moose said in the press release.
Richard Ferlauto, AFSCME’s director of pension and benefit policy, lauds the Verizon decision as “a breakthrough.” “It’s the first time a company has moved to adopt ‘say on pay’” after a vote on a shareholder proposal, Ferlauto told Risk & Governance Weekly.
The AFL-CIO (of which AFSCME is a part) is also optimistic about the possibility for an advisory vote, but the labor federation expressed some concern about the language used by the Verizon board to describe its new pay vote policy.
The company describes the new policy as providing a shareholder advisory vote “related to executive compensation,” leaving some AFL-CIO officials nervous about whether all of the company’s pay practices will really be put to a vote and whether pay disclosure will be made in a clear and meaningful way, said Heather Slavkin, the AFL-CIO’s senior legal and policy advisor.
“As we all know, the devil is in the details,” Slavkin told Risk & Governance Weekly. “We are eager to see how it actually looks when the management proposal is submitted to shareholders.”
The Verizon board also modified its policies on compensation consultant independence and executive severance pay--both in response to high support for shareholder proposals on these issues at the annual meeting.
A new policy ensures that any firm consulting on executive pay for the board is not allowed to do any other contractual work for the company. A Communication Workers of America proposal asking the company to examine the independence of its compensation consultant won 46.9 percent support in May.
According to the press release, Verizon has also implemented a revised policy that more specifically defines the types of payments that can be used in calculating a severance payment to an executive, but regulatory filings including the exact details of the new policy have not yet been released. A shareholder proposal, which asked for severance payments to be limited to 2.99 times (or less) an executive's annual pay plus bonus, received 47 percent support at the meeting.
At least one other company where a “say on pay” resolution received majority support is considering adopting a yearly advisory vote, Ferlauto reported. AFSCME, Walden, and Connecticut and North Carolina fund officials sent a similar letter urging the board at industrial equipment manufacturer Ingersoll-Rand to hold an annual pay vote. A Unitarian Universalist Association proposal on “say on pay” received 56.7 percent support at the company’s meeting in June.
According to Ferlauto, Ingersoll-Rand’s board responded by indicating that it has begun to contact major shareholders to get their views on implementing an advisory vote on pay.
And more companies may face shareholder pressure to follow suit. “Say on pay” proposals received majority support at six other firms this year in addition to Verizon and Ingersoll Rand. The latest was a resolution at Par Pharmaceutical that received 56.8 percent support on Oct. 16, according to the proponents, the New York City Public Employees' Retirement System.
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Tuesday, October 30, 2007 |
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Trends in Executive Compensation Leadership Interview
Submitted by: Sarah Cohn, Marketing and Communications
Do you want to hear about the latest developments on say on pay or compensation disclosure best practices? RiskMetrics Group has just posted an interview on trends in executive compensation with Carol Bowie of RiskMetrics Group’s Governance Institute and Stephen Deane of RiskMetrics Group’s Governance Exchange Team. The discussion covers where the say on pay issue is headed, how performance-based stock options did during the 2007 proxy season and emerging compensation trends. Stephen Deane specifically discusses best practices in compensation disclosure based on his new report, Compensation Disclosure: Best Practices and Examples.
To listen to the interview, please visit RiskMetrics Group’s 2007 Fall Leadership Interview Series web page.
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Monday, October 1, 2007 |
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Activision: A Record Vote for "Say on Pay"
Submitted by: L. Reed Walton, Publications
Investors at Activision gave 69 percent support to a shareholder resolution asking for an annual advisory vote on executive compensation (“say on pay”), according to proponents.
Conrad MacKerron, director of the corporate social responsibility program at the As You Sow Foundation, reported the result--the highest ever for a “say on pay” proposal in the United States--after the company’s annual meeting on Sept. 27.
Activision, a Santa Monica, California-based video-game maker, is now under formal investigation by the Securities and Exchange Commission in connection with the company’s past stock-option granting practices.
In May, a special subcommittee of Activision’s board found that about 63 percent of option grants made to former and current employees from 1997 to 2003 had been misdated. In many cases, grant dates reflecting the lowest or second-lowest exercise price for the month or year had been selected with the benefit of hindsight.
Even before the subcommittee presented its findings, the company replaced the director of human resources, dismissed its former outside counsel, and created a new “principal compliance officer” post. The officers and directors who had received misdated options that had already vested agreed to make up the difference in exercise price, per the subcommittee’s recommendation.
The Activision result marks the seventh time this year that advisory pay vote measures have attained majority support. The proposal--now in its second year--has averaged 42.4 percent support over 42 meetings since January.
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Friday, June 15, 2007 |
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A Closer Look at "Perks"
Submitted by: L. Reed Walton, Staff Writer
This year, as U.S. companies file proxy statements under the new compensation disclosure rules, the perquisites and other extra benefits that top executives enjoy are becoming more apparent to investors.
Before this proxy season, many executive perks were largely obscured, with a few coming to light years later during litigation or government probes. Prominent examples include the $15,000 umbrella stand and other luxury items purchased by Tyco International CEO L. Dennis Kozlowski, the personal aircraft use by former Tyson Foods Chairman Donald J. Tyson and his family, and the retirement perks received by General Electric CEO Jack Welch, which included use of an $11 million Manhattan apartment and a Mercedes. These headline-grabbing benefits helped spur investor demands for better disclosure of perks and other forms of executive compensation.
The new Securities and Exchange Commission rules mandate that companies disclose perks in aggregate of $10,000 (down from the former limit of $50,000) in the summary compensation table. The rules are causing some firms to cut back on perks, while other companies seek to defend these extra benefits by citing retention and security concerns.
Some investor advocates are not persuaded by corporate arguments that perks are still needed to retain top executives.
"Pay should be tied to long-term sustainable corporate performance, so perks can break this pay-for-performance link," Justin Levis, a senior analyst with the Council of Institutional Investors (CII), told Governance Weekly.
Levis said he "has yet to hear a convincing rationale" from companies about why they provide free personal travel on the corporate plane, club dues, home security, and other "extras."
Perks reform, said Michael Garland, director of value strategies for the CtW Investment Group, the investment arm of labor federation Change to Win, is "obviously a reform that the labor funds are highly supportive of."
"In situations where there are egregious perks," Garland told Governance Weekly, "you will see shareholders develop either ... proposals or [requests for] greater accountability of board members."
As companies file their first proxy statements under the new disclosure rules, it's not yet clear whether a significant number of firms are scaling back the perks, supplemental retirement plans, and other benefits that are not provided to regular employees. However, anecdotal evidence suggests that many firms still offer these benefits, and they now are making a greater effort to explain these practices to shareholders.
For instance, Boeing's proxy statement provides a breakdown of CEO James McNerney Jr.'s personal use of the corporate jet, which the company valued at $331,649. That total includes $63,053 for personal travel associated with relocation, $268,396 for general personal travel, and $9,160 for travel to outside board meetings. McNerney serves on two boards aside from Boeing's.
Drugmaker Eli Lilly's proxy specifies that CEO Sidney Taurel only used the company jet for personal travel to and from outside board meetings. "The company does not provide significant perquisites or personal benefits to executive officers, except that the company aircraft is made available for the personal use of Mr. Taurel and [Chief Operating Officer John] Lechleiter, where the committee believes the security and efficiency benefits to the company clearly outweigh the expense," the proxy statement reads.
While Goodyear Tire & Rubber offers top executives home security services, financial planning, tax preparation, country club dues, and annual physical exams, the company's proxy statement said the compensation committee "does not consider these perquisites to be a significant component of executive compensation."
Retention and security are the most-often cited reasons for executive officer perquisites. Morgan Stanley and eBay say in their proxy statements that perquisites (and other benefits such as bonuses and equity awards) are essential to retaining the same quality of executives that lead other firms in their revenue and industry grouping. The companies provide bulleted lists of peer companies with which they must "compete" for top executive talent.
Margaret Whitman, CEO of online auction firm eBay, received more than $1 million in personal travel on the company plane, including nearly $240,000 in reimbursements for taxes (also known as "gross-ups") owed on that travel. The company also notes that it paid finance chief Robert Swan close to $1 million in relocation fees and related tax gross-ups for "costs and expenses related to moving from Texas to the San Francisco Bay Area and the sale of his home." EBay also offers information technology support for executives' home computer systems.
Southern Union's proxy statement notes that it has a "policy that encourages [CEO George] Lindemann and his spouse to use company aircraft for all business and non-business purposes for their personal security and safety." The Houston-based natural gas company reports that Lindemann accrued $609,862 in personal travel on the company jet in 2006, not including $44,393 in tax gross-ups.
United Technologies reported $612,303 in personal airplane use by CEO George David in 2006. Like Southern Union, the United Technologies proxy statement says that the CEO and CFO "use corporate aircraft for personal travel in accordance" with the company's security policy, but no further explanation of the security policy is provided.
Meanwhile, Morgan Stanley CEO John J. Mack incurred $321,848 for personal aircraft use in fiscal 2006 and $407,762 in fiscal 2005, according to a footnote to the company's summary compensation table. At Morgan Stanley, a "board-approved policy directs the Chairman and CEO to use the [c]ompany aircraft when traveling by air."
Continue reading "A Closer Look at "Perks"
Submitted by: L. Reed Walton, Staff Writer" »
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Thursday, May 31, 2007 |
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Motorola: Third Majority for “Say on Pay”
Submitted by: L. Reed Walton, Staff Writer
A proposal asking for an annual shareholder advisory vote on executive pay won 51.8 percent support at Motorola’s annual meeting, according to a May 30 company press release. The proposal, submitted by shareholder William Steiner, went to a vote on May 7.
The result marks the third time a “say on pay” proposal has received majority support this season, according to ISS data. A similar proposal at Verizon Communications won 50.2 percent of votes cast on May 3, and another resolution at Blockbuster on May 9 received 57 percent support, the highest result so far for “say on pay.”
The issue first appeared on company ballots in 2006, and averaged 40 percent support over seven meetings last year. “Say on pay” has fared slightly better this year, averaging 42 percent support at 22 meetings where results are known.
Four proposals are scheduled to appear on company ballots in early June, including Nabors Industries on June 5, Ingersoll-Rand on June 6, Affiliated Computer Services on June 7, and Countrywide Financial on June 13.
Lawmakers continue to weigh in on the “say on pay” issue. Democratic Sen. Barack Obama of Illinois--a presidential contender--has asked Sen. Christopher Dodd of Connecticut, the Democratic chairman of the Senate’s banking committee--who is also running for president--to hold hearings on his bill that would give shareholders at all public companies an annual advisory vote on the executive pay process.
Obama put forward the bill in late April as companion legislation to a similar bill by Rep. Barney Frank of Massachusetts, chair of the financial services committee in the House of Representatives. The House approved Frank’s bill on April 20.
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Monday, May 14, 2007 |
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Two Pay Proposals Get Significant Support at Apple
Submitted by: L. Reed Walton, Staff Writer
Two proposals related to executive pay received close to 50 percent of votes cast at Apple's annual meeting on May 10, according to Cornish Hitchcock, an attorney for the Amalgamated Bank's LongView Fund, which submitted one of the proposals.
An options reform proposal won 47 percent support, while a request for an annual advisory vote by shareholders on executive pay won 46 percent, Hitchcock said.
LongView, a labor-affiliated fund, put forward the options reform proposal, which asked the company to disclose grant dates before the beginning of each fiscal year and to price options at the average of the opening and closing stock prices on the grant date. Apple has declined to adopt new policy on options, noting that it has stopped giving options to top executives in favor of restricted stock grants.
"[W]e think it's important to have a policy dealing with stock options even if they’re not currently in favor," Hitchcock told Governance Weekly.
The proposal, co-sponsored by the Connecticut Retirement Plans and Trust Funds, was one of the first to appear on corporate ballots since the U.S. options timing scandal broke last year. Apple restated its earnings in December, reflecting a loss of $105 million, to account for past option grants after an internal investigation concluded some grant dates were "intentionally selected in order to obtain favorable exercise prices."
The 47 percent vote for the option resolution is a strong showing for a first-year proposal, and the vote far exceeds the average support earned by most compensation-related proposals in past seasons, according to ISS data.
Another LongView options proposal may have received majority support at CVS/Caremark on May 9. Company officials said the vote result was too close to call at the end of the meeting. A similar measure filed by the Teamsters went to a vote at Broadcom on May 2. Broadcom officials indicated that the proposal did not pass, but they declined to disclose the percentage support before the company's next quarterly regulatory filing.
At Apple, the pay vote resolution was filed by the AFL-CIO. The proposal is the fifth on this topic to receive more than 45 percent support this season, according to ISS data. The best showing so far was the 57 percent vote for a New York City Employees' Retirement System resolution at Blockbuster on May 9, proponents said.
Overall, these "say on pay" proposals have averaged 42 percent support at 17 meetings this season. While shareholders can vote on executive pay in the U.K., Australia, and other markets, the idea is relatively new in the United States. In 2006, pay vote proposals averaged 40 percent support at seven meetings in their first year on corporate ballots.
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Friday, May 11, 2007 |
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First Majority for "Say on Pay"
Submitted by: L. Reed Walton, Staff Writer
In the first clear majority vote for the issue, a proposal seeking an annual advisory shareholder vote on executive pay received 57 percent support at Blockbuster, according to the proponent, the New York City Employees' Retirement System (NYCERS).
"We are encouraged by the high level of shareholder support and hope that Blockbuster's board of directors will act swiftly to implement the expressed will of its shareholders," New York City Comptroller William C. Thompson wrote in a press release.
The video-rental company declined to confirm the exact level of support, but company officials did indicate that the NYCERS resolution--along with another shareholder proposal asking the company to eliminate its dual-class share system--was approved at Blockbuster's May 9 annual meeting.
"[The proposals] are non-binding, so our board will take them under advisement," Angelika Torres, director of Blockbuster's investor relations division, told Governance Weekly.
The Blockbuster vote is the highest known support received by any advisory pay vote proposal. The "say on pay" initiative is relatively new, having debuted with seven proposals last year that averaged about 40 percent support. The showing at Blockbuster is noteworthy because the company has not been criticized by prominent investors over its pay practices or faced an investigation into past stock option grants.
In its supporting statement, NYCERS said it wanted an advisory vote to "provide Blockbuster with useful information about whether shareholders view the company’s senior executive compensation, as reported each year, to be in shareholders' best interests."
Management at the Dallas-based company opposed the measure, saying it already provides means by which investors can communicate with the board.
A similar resolution at Verizon Communications may have won more than 50 percent of votes cast at the company's May 3 meeting. Preliminary counts indicate the vote was too close to call at the end of the meeting, and the company said it plans to tabulate the votes and release final results in about two weeks.
At 14 companies this season, pay vote resolutions have averaged 42 percent support, two percentage points higher than in 2006. A proposal by the Needmor Fund, a religious group, won 48.4 percent at Occidental Petroleum on May 4, while a similar measure filed by the AFL-CIO got 49.2 percent support at Merck's meeting on April 24.
All other "say on pay" measures this season have received 47 percent support or lower, with the lowest support level, 30.4 percent, at Coca-Cola on April 18.
More advisory vote proposals are on corporate ballots next week, including JPMorgan Chase on May 15, Northrop Grumman and AMR on May 16, Yum! Brands on May 17, and Time Warner on May 18.
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Friday, May 4, 2007 |
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A Close Vote at Verizon
Submitted by: L. Reed Walton, Staff Writer
Investors continue to support "say on pay" shareholder proposals this proxy season, with resolutions averaging 41 percent support over 13 meetings.
A proposal at Verizon Communications may have received majority support on May 3. According to a company press release, the preliminary results "are too close to determine whether the proposal passed or was defeated." Verizon said it will report final results on its Web site and in its Form 10-Q filing for the second quarter.
Also at Verizon, proposals seeking shareholder approval for future severance agreements and greater disclosure on compensation consultants both won about 47 percent support. The AFL-CIO, which supported all three resolutions, said the results "send a strong and powerful message to Verizon that shareholders will not stand for excessive CEO compensation."
Before Verizon's meeting, the best showing for a "say on pay" proposal was a 49.2 percent vote at Merck on April 24, according to the AFL-CIO, which received that result from the company. However, it is unclear whether abstentions were included when the pharmaceutical company determined that percentage.
An advisory vote proposal won 40 percent support at Boeing on April 30, despite the company's opposition to the resolution.
"It is possible that this 40 percent is the highest so far for a say on pay proposal where a company had an aggressive vote-no campaign," said proponent and shareholder activist John Chevedden.
To review a new ISS white paper on pay votes in international markets, please visit here.
*This article ran in this week's edition of Governance Weekly.
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Wednesday, April 25, 2007 |
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ISS Publishes New Study - What International Market Say on Pay: An Investor Perspective
Submitted by: Stephen Deane, Vice President, ISS' Center for Corporate Governance
A Say on Pay shareholder proposal reportedly scored the highest level of support yet yesterday: 49.2 percent of the votes cast at Merck's annual meeting. That's still just shy of a majority vote - or is it? It isn't clear whether "votes cast" includes abstentions. If so, then support could actually have reached a majority of yes-and-no votes excluding abstentions. The company has declined to comment. Either way, with scores of shareholder proposals appearing on ballots - plus a Congressional bill that the House of Representatives passed last week - Say on Pay has become one of the hottest topics of this proxy season.
Several overseas markets - including the U.K., the Netherlands and Australia -already have legislation requiring companies to put their compensation reports or policies to shareholder votes. What lessons can we learn from their experience?
Institutional investors in those markets report positive impacts. The shareholder votes have strengthened dialogue with companies, tightened pay-for-performance links and reduced the likelihood of severance rewards for failure. It's true that there are market differences with the U.S., and votes on pay are not a panacea. But the experience abroad suggests that the practice can and should be transplanted to American soil.
Today we publish our research findings in a new study titled "What International Markets Say on Pay: An Investor Perspective."
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Friday, April 20, 2007 |
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Pay Vote Bill Passes the House
Submitted by: L. Reed Walton, Staff Writer
Members of the U.S. House of Representatives approved a bill that would give shareholders an annual advisory vote on executive pay.
Lawmakers passed H.R. 1257, the "Shareholder Vote on Executive Compensation Act," by a vote of 269-134 on April 20. With Democrats holding a 31-seat majority in the House, the vote indicates that the bill attracted some Republican support.
The bill is sponsored by the chair of the House Committee on Financial Services, Democratic Rep. Barney Frank of Massachusetts. The legislation includes a provision for a separate shareholder vote if a board approves a new severance package for executives while negotiating to sell the company.
"This is a bill to further the workings of the capitalist system of the United States," Frank said in a committee press release after the vote. "It has one very specific provision; it says that the shareholders, the owners of public corporations, will be allowed to vote every year in an advisory capacity on the compensation paid to their employees who run the companies."
Though the bill passed by a fairly wide margin in the House, the legislation's prospects of becoming law are uncertain. No similar bill has been introduced in the Senate, where Democrats hold a 51-49 majority.
While the White House released a short statement on April 17 expressing opposition to the bill, President George W. Bush has stopped short of saying he will veto the measure if it reaches his desk. The Bush administration said it "does not believe that Congress should mandate the process by which executive compensation is approved." The White House said recent governance improvements, such as the Securities and Exchange Commission’s new pay disclosure rules, "should be given time to take effect" before additional requirements are imposed.
In response, Frank and other bill supporters emphasize that bill "will not set any limits on pay." According to Frank's committee staff, the legislation will ensure that shareholders have an advisory vote on executive pay practices "without micromanaging the company."
Meanwhile, investors continue to show interest in annual advisory votes on executive pay. On April 17, shareholder proposals at Citigroup and Wachovia won about 43 percent and 40 percent support, respectively, according to the proponent, the American Federation of State, County, and Municipal Employees. The following day, a proposal filed by the Benedictine Sisters received 30.4 percent at Coca-Cola Co., the company reported. So far this season, pay vote resolutions have averaged about 39.7 percent support at six meetings.
Investors at nine companies will vote on the issue next week. Those meetings include Wells Fargo and Merck on April 24; Wyeth, Lockheed Martin, Capital One, and Valero Energy on April 26; and Abbott Laboratories, AT&T, and Merrill Lynch on April 27.
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Thursday, April 19, 2007 |
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RREV Publishes Trends in Executive Remuneration 2006
Submitted by: Sarah Ball, Director of Marketing and Communications, ISS Europe
RREV (Research Recommendations and Electronic Voting), ISS' UK corporate governance team, which applies the National Association of Pension Funds Corporate Governance Policy, has published a new report 'Trends in Executive Remuneration in 2006.' Key findings include that median salary increases for UK CEOs ranged from 8% (FTSE 100 and SmallCap) to 14% (FTSE 250). At CEO level, the largest percentage growth was at the lower quartile level, which was particularly marked at FTSE 100 companies, with an increase of 18%.
Performance related bonus payments received by UK executive directors increased by higher percentages than salaries. At CEO level, median bonus payments at FTSE SmallCap companies increased by 31%, at FTSE 250 companies by 34% and at FTSE 100 companies by 39%. In 2006 many companies have raised the maximum annual bonus potential. The data shows that bonus payments