Executive pay will face investor votes - 19 Apr 2009
Executive pay will face investor votes
Firms that get bailouts must, and others will, let shareholders have nonbinding say
The Atlanta Journal-Constitution
Sunday, April 19, 2009
Coming soon to an auditorium near you: Lots of executives and corporate directors who could be squirming in their seats.
After more than a year of shrinking retirement nest eggs and job
security, investors are in a foul mood going into this spring’s
shareholder meetings.
At hundreds of those meetings, shareholders will be voting on
so-called “say-on-pay” proposals aimed at ratifying or rejecting
executives’ often-astronomical compensation packages. Most are on the
agenda at the federal government’s insistence as a condition for
getting bailout money.
The proposals are “advisory” only, meaning companies’ boards of
directors could ignore shareholders’ votes. Also, some corporate
governance experts say various shareholder proposals aimed at curbing
executive pay have become almost a routine staple at many annual
shareholder meetings in recent years, especially when the economy and stock market are faring poorly.
Still, experts said, times could be ripe for something of a
shareholder revolution, given the volume of such proposals being voted
on in the midst of a deep recession.
More than 400 financial institutions — including Atlanta-based
SunTrust — will be required to hold nonbinding shareholder votes this
year giving the banks’ executive pay plans a thumbs up or down. The
annual ballots — mandated by the federal stimulus package — are a
condition for receiving money under the federal government’s Troubled
Asset Relief Program.
SunTrust’s shareholders meet in Atlanta on April 28.
Meanwhile, activist shareholders at about 100 other companies have
submitted proposals this year asking for a say-on-pay vote on executive
compensation at future meetings. Those votes also are nonbinding.
That list includes Coca-Cola, whose shareholders will meet Wednesday in Duluth; and Home Depot’s shareholders, who meet next month in Atlanta.
Whether such shareholder involvement is a good idea depends on who’s talking.
The boards of directors of both Coca-Cola and Home Depot oppose the say-on-pay proposals.
Home Depot shareholders have already rejected similar proposals three times, the company said in its proxy statement. Home Depot
said it has “ongoing, direct communication with shareholders through
investor conferences, daily telephone calls and letters” that has led
to improvements to its executive pay plan.
Former Home Depot CEO Robert
Nardelli became the poster child for extreme paychecks a few years ago
after taking home $32 million his final year at the company — plus a
$210 million severance package.
Kenneth Daly, president of the National Association of Corporate
Directors, said top executives should spend more time developing
talented managers who could someday run their companies so they don’t
have to offer huge pay packages to “corporate rock stars” from outside
the company.
Daly said the current say-on-pay proposals will be “awkward” because
executives will have worked for months already under their new
contracts. Still, he thinks national regulations or legislation
requiring such votes is nearly inevitable.
“There’s a whole lot of unhappiness out there,” Daly said.
Large institutional shareholders are divided on the issue.
“We look at it on a case-by-case basis,” said Tom Horkan, who helps
oversee the investment of portfolios totaling nearly $43 billion for
Georgia’s teacher and state employee retirement plans. Getting more
shareholder input may “make sense” at some companies, he said, but it
could “cause distraction” or amount to “micro-managing” at others.
“Right now, everybody’s walking on broken glass,” he said. “I think
boards of directors are responsible. They’ll do what’s right.”
On the other hand, Elton Shepherd, a former Coca-Cola employee
turned activist investor, said he doesn’t see the harm in having a
nonbinding vote on executives’ salaries and perks.
“I think it gives shareholders a little better say in the affairs of
the company. … I don’t think it would hurt anybody,” Shepherd said. He
has submitted a separate shareholder proposal asking that Coca-Cola get
shareholder approval before it allows departing executives to take
restricted stock with them that hasn’t vested yet.
Company executives and directors “claim they work for shareholders,
but when shareholders try to have any input, every single company
opposes,” Shepherd said.
Activist investors have been pushing for more input as CEOs’ pay at
many companies has soared. Regulators in the United Kingdom, Australia,
the Netherlands an
<p>For more information on <a href="http://www.ajc.com/business/content/business/stories/2009/04/19/executive_pay_vote.html" target="_blank">Say on Pay, Executive Compensation</a>.</p>
<p>Posted by Dan Walter</p>
<p>Performensation: <a href="http://www.performensation.com" target="_blank">Equity Compensation for High Performance Companies</a>.</p>
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