Say-on-Pay Shareholder Votes Gain Momentum
by Michael Connor
Some 55 publicly-held U.S.-based companies have now voluntarily agreed to hold annual advisory shareholder votes on executive compensation, according to shareholder advocates who have been pushing for adoption of the practice.
The number of companies with so-called “say-on-pay” votes has increased from only 6 in 2008, when Aflac Inc. became the first to adopt the practice, and 19 in 2009.
“Say-on-pay holds corporate leaders accountable for unjustifiable CEO pay,” said Gerald W. McEntee, President of the American Federation of State, County and Municipal Employees (AFSCME), a 1.6 million member union whose members participate in public pension funds with combined assets worth more than $1 trillion. “Shareowners are demanding sensible pay for performance programs that discourage excessive risk taking.”
In addition to the 55 companies that have adopted say-on-pay votes, companies participating in the federal government’s Troubled Asset Relief Program (TARP) are also required to have annual advisory votes.
More companies are “stating a higher comfort level with the concept” and there are “several companies whose boards have voted to adopt but have not gone public as yet,” said Timothy Smith, senior vice president of Walden Asset Management and a leader in the say-on-pay movement. Shareholder proposals urging the adoption of annual say-on-pay votes have been filed at 70 companies in 2010, according to Smith.
Votes Are Advisory
The say-on-procedures voluntarily adopted by companies to date generally establish mechanisms that enable shareholders to annually register their approval or disapproval of compensation for senior management. In most cases, said Smith, the advisory vote is likely to result in “pro-forma” approval of executive pay packages. However, if shareholders consider compensation excessive, especially when combined with poor corporate performance, investors could vote to register disapproval.
“It puts the (board’s) compensation committee on notice,” Smith said. “”A stubborn company could ignore it entirely, but I don’t think they would.” Smith noted that a majority of shareholders at Royal Dutch Shell last year voted disapproval of management pay, prompting revisions of pay packages. Advisory shareholder votes on executive compensation are mandated in the United Kingdom.
The coalition pressing for say-on-pay reform includes a number of public pension funds, labor funds, asset managers, individual investors, foundations and religious investors. Denise L. Nappier, Treasurer for the state of Connecticut, said: “Corporate boards have a primary responsibility to their shareholders – and this includes getting input from them on how well the company’s executive compensation ties pay to performance. These 50 and counting companies deserve credit for listening to their shareowners.”
Smith said a number of financial firms are among the companies recently announcing they adopted a say-on-pay vote, including American Express, Bank of New York Mellon, Goldman Sachs, JPMorgan Chase, State Street, SunTrust Banks and Wells Fargo. Other adopting companies, according to Smith, include Aflac, Ameriprise, Apple, Bristol-Myers Squibb, CVS Caremark, ConocoPhillips, Hewlett-Packard, Honeywell, Ingersoll-Rand, Intel, Motorola, Valero Energy and Verizon.
Related Posts:
1 Responses »
Leave a Response
Entries(RSS)
This is good but how about fighting for open book management, whereby employees and others can look at the financial statements and also be given a share of profits, rather than mere salaries?
Some thoughts on leadership:
Leadership is the art of mobilizing others toward shared aspirations. In a business enterprise, leaders must take care of employees who, in turn, are responsible for taking care of customers, stakeholders, and related outside parties, such as the government and the community, in an ethical manner. This approach also considers implications for the environment and results in profitable growth combined with an increase in the welfare of all parties involved.
Great leaders are visionaries whose intuition helps them to recognize and capitalize on business opportunities in a timely manner. Their success is based on surrounding themselves with “like-minded” professionals who complement them to help reinforce their strengths and eliminate their weaknesses. They build teams consisting of individuals who complement one another in a way that ensures consistent performance in line with corporate goals. The mantra embodied herein is “Build grand castles in the air while ensuring that they rest on solid foundations.” This is in direct contrast to mediocre leaders who surround themselves with yes-people who, by their very nature, are unable to contribute positively to the bottom line!
The wisdom of effective leaders enables them to appreciate the views of their inner circle and others. In situations where consensus cannot be reached, they have an uncanny ability to cut to the chase and make informed decisions. They foster an environment that encourages the sharing of ideas through brainstorming while realizing that innovation need not be preceded by the existence of committees.
True leaders place a great deal of emphasis on culture and shared values. They realize that business involves human beings and that profitable growth results from fruitful relationships. They normally possess both formal and informal power. Formal power is entrusted to them by virtue of their position in the company. Informal power results from their core belief system. They lead by example, thus earning the respect and admiration of their peers and subordinates. As a result, employees are enthusiastic about going beyond the call of duty for “their” leaders.
Great leaders build organizations that are vibrant and performance driven. They structure employee compensation packages in a way that promotes and reinforces the right behaviors and rewards people on the basis of individual as well as team performance. They believe that a base salary pays the bills, whereas variable compensation, including earnings before interest, taxes, dividends and amortization (EBITDA)-based bonuses, motivates employees to challenge themselves and increase their contribution to the firm on a consistent basis. These leaders find reasons to pay bonuses as opposed to those leaders who find reasons to deprive employees of bonuses they truly deserve! They realize that there is enough in this world for everyone’s need, though not for everyone’s greed, as mentioned by the late Mahatma Gandhi.
Leadership traits can create a virtuous cycle for the firm’s management, employees, clients, stakeholders, and others. Great leaders have a natural flair. There are those who believe that their effectiveness can be increased through education, other methods of training and development, and experience, though to a limited extent.
Ethical leadership calls for morals, fairness, caring, sharing, no false promises or unreasonable demands on others, etc. Is “ethical leadership” an oxymoron?
I have a policy of distributing free abridged versions of my books on leadership, ethics, teamwork, motivation, women, bullying and sexual harassment, trade unions, business law, etc., to anyone who sends a request to crespin79@hotmail.com.
Maxwell Pinto, Business Author
http://www.strategicbookpublishing.com/Management-TidbitsForTheNewMillenium.html
http://www.youtube.com/watch?v=p34hB50lv-8