Say-on-Pay is on the Way
14 Bank Bailout Recipients Facing Say-on-Pay Resolutions
March 2, 2009 (SmartPros) Executive compensation reform is coming to head in 2009. American Express, Intel, Hewlett-Packard and Occidental are the latest to get on the say-on-pay bandwagon.
Of the record 100 companies facing say-on-pay shareholders resolutions this year, five have recently agreed to schedule advisory votes. The list of 100 companies (http://hastingsgroup.com/SOP2009.pdf) includes 14 companies that will be required under the new federal stimulus bill to put such binding votes in place within one year, according to the Social Investment Forum.
In the last 10 days, two of the 14 banking bail-out recipients – American Express (AXP) and Huntington Bancshares (HBAN) – already have come to an agreement with say-on-pay resolution sponsor Calvert Group to proceed on an advisory vote. On February 20th, American Express committed to implement the executive-compensation vote as required by President Barack Obama’s signing of the American Recovery and Reinvestment Act into law on February 17, 2009. Huntington Bancshares did the same on February 23, 2009. The early action by American Express and Huntington Bancshares is expected to put pressure on other bailout fund recipients – and, more broadly, leading non-banking companies – to embrace the say-on-pay advisory vote as standard corporate practice.
In fact, the intent of the stimulus bill amendments successfully introduced by Senator Dodd is to require a say-on-pay vote in the 2009 proxy season for those companies that have not yet submitted their proxy materials to the Securities and Exchange Commission (SEC). Investors intend to press the balance of the 14 companies -- South Financial Group (TSFG), CoBiz Financial (COBZ), State Street (STT), Wells Fargo & Company (WFC), Capital One Financial (COF), Zions Bancorporation (ZION), Bank of America (BAC), Goldman Sachs (GS), Bank of New York (BK), Morgan Stanley (MS), Fifth Third Bancorp (FITB), American International Group (AIG) – to also agree to pledge to implement such votes as soon as possible. Any such early movement would be considered a new wave of support for say-on-pay resolutions by the resolution filers, who then might withdraw the pending resolutions.
Recent progress on say-on-pay resolutions
In addition to American Express and Huntington Bancshares, new agreements have been announced in the last few weeks by Occidental Petroleum (OXY), Intel (INTC) and Hewlett-Packard (HPQ) to hold say-on-pay votes. These corporations made the move in recent weeks after extensive discussions with proponents who had filed say-on-pay resolutions. The latest companies agreeing to say-on-pay follow the past decisions by Verizon (VZ), Aflac (AFL), Blockbuster (BBI), Motorola (MOT), MBIA (MBI) and Ingersoll Rand (IR) to do the same. To date, 18 companies have pledged to or are implementing say-on-pay votes.
On January 24, 2009, new SEC Chair Mary Schapiro’s endorsed say-on-pay votes as she responded to questions from her confirmation hearing. “Executive compensation has been a concern of mine for some time now. I believe that it’s an appropriate measure to give shareholders an advisory vote on these matters,” she stated.
The record 100 say-on-pay resolutions filed for the 2009 proxy season follows an active 2008 engagement season, where resolutions went to a vote at over 80 companies and averaged 42 percent support, including 11 companies which received majority votes. In 2007, similar resolutions were filed at more than 50 companies which also averaged about 42 percent support including eight companies where the proposal received over 50 percent of the vote.
The ARRA stimulus bill signed into law by President Obama earlier this month will require say-on-pay votes at a total of 400 companies receiving banking bailout funds. The stimulus bill provision is widely expected to boost the prospects for 2009 passage of a say-on-pay vote bill that already received strong support in the U.S. House of Representatives in 2008.
Say-on-pay appeals to socially responsible investors
“The say-on-pay movement shows what concerned investors can do when they put their financial clout to work together," says Social Investment Forum CEO Lisa Well.
“We are clearly moving toward say-on-pay votes for all companies. We believe that with SEC Chairwoman Schapiro’s and Commissioner Walter’s support, the strong 2-to-1 vote in the House in the last Congress, the movement by company leaders and the intense public sentiment on executive pay, it is virtually inevitable that companies will soon be required to implement this policy. The smart thing for corporations to do now is to step forward and voluntarily adopt the say-on-pay advisory vote,” says Tim Smith, senior vice president, Environment, Social and Governance Group, Walden Asset Management.
Say-on-pay vote proponents are seeking a management-sponsored non-binding advisory vote on executive compensation presented in the annual proxy statement. The resolutions have been submitted at a wide range of companies, including but not limited to those where pay has been excessive or where there has been a perceived misalignment between pay and performance over the past three to five years.
Aflac was the first U.S. company to give shareholders a say on pay vote in 2008, and it was overwhelmingly supported by over 95 percent of shareholders. Also in 2008, RiskMetrics, H&R Block (HRB), Zale (ZLC) and Littlefield (LTFD) joined Aflac as among the first companies adopting the advisory vote. At RiskMetrics, 94 percent of shareholders supported its compensation approach. At H&R Block, 99 percent of shareholders voted for the proposal, as did nearly 97 percent at Littlefield.
2009 filings at major companies include Apple, Bank of New York Mellon, American Express, Coca-Cola, AIG, Capital One, Hewlett-Packard, Intel, Wells Fargo, AT&T, Exxon Mobil, Raytheon, General Electric, Goldman Sachs, Home Depot, IBM, Merck, UnitedHealth, Time Warner, Citigroup, ConocoPhillips, CVS Caremark, Morgan Stanley, Valero Energy, and YUM! Brands, Occidental Petroleum, Wal-Mart, Rite-Aid, KB Homes, Ryland Group and Charming Shoppes.2009 SmartPros Ltd. All rights reserved.