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Say on Pay: Shareholders to Vote on Execs' Compensation

May 2, 2011 (The Gazette, Colorado Springs, Colo.) Shareholders in Westmoreland Coal will be the first in the Colorado Springs area to get a voice on how much pay and benefits executives receive under phased-in rules adopted by the Securities and Exchange Commission that require advisory votes.

Wall Street reform legislation enacted last summer requires such votes, both on executive pay and how often votes are conducted, for annual meetings after Jan. 21. Among the four Springs companies with publicly traded stock, stockholders of Westmoreland and Spectranetics will vote May 24 and June 9, respectively, while Century Casinos and Ramtron International are not required to hold "say on pay" votes until 2013 because smaller companies get a two-year delay to comply. Both Spectranetics and Westmoreland recommend annual votes on executive pay packages.

The votes on pay and how frequently stockholders will weigh in on pay aren't binding, but few companies want to suffer the embarrassment of a defeat. So far, stockholders have rejected pay packages at Ameron International, Beazer Homes USA, Hewlett-Packard, Jacobs Engineering Group and Shuffle Master. General Electric and Walt Disney both made changes in their CEO pay packages to avoid rejection from shareholders after an influential advisory service had recommended a no vote.

"Say on pay" votes are common in Australia and England, and some U.S. financial institutions had to seek approval of executive-pay packages under rules that came with government aid they received during the 2008 financial crisis. Some technology companies, including Apple, Microsoft and Verizon Communications voluntarily adopted "say on pay" proposals.

Most larger public companies, including Spectranetics and Westmoreland, also will have to ask stockholders to approve so-called golden parachute agreements, but only if they are seeking stockholder approval of mergers or acquisitions that would trigger payments under such agreements. Companies with less than $75 million in publicly traded stock, which includes Century and Ramtron, are exempt from such requirements for at least two years under the SEC's rules.

"Anything that gives shareholders more say is a good thing," said Tom Zwirlein, a finance professor at University of Colorado at Colorado Springs. "There is a lot of evidence that when management and boards try to take away shareholder rights by staggering board terms (which make takeovers of public companies with board or management support more difficult), the price of the company's stock goes down. The opposite also tends to be true -- the price tends to go up when companies expand shareholder rights."

The reform law, formally know as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, also requires the SEC to issue new rules, which the agency is still developing, that will force executives to repay bonuses and other incentive-based compensation if the company has to restate financial results.

Both Spectranetics and Westmoreland said in proxy statements for their upcoming annual meetings that they are waiting to adopt such policies until the SEC adopts the required rules.

The "say on pay" votes come as CEO pay is rising at double-digit levels.

A recent labor union study found the average pay package for CEOs of companies in the Standard & Poor's 500 stock index rose 23 percent last year from 2009 to $11.4 million, or 343 times the annual pay of the average worker.

The AFL-CIO study covered the 299 companies that filed proxies with the SEC by the time the study was released April 19.

Pay for the five CEOs of Century, Ramtron, Spectranetics and Westmoreland -- there are five because Century has two co-CEOs -- fell 6.9 percent from 2009 to $4.86 million last year, the second decrease in the past three years.

But pay fell only because Emile Geisenheimer retired Nov. 1 as CEO of Spectranetics, and as a result did not earn bonuses or stock options (though he did receive a year's salary of $517,500 and immediate vesting of all stock options worth $314,225 in an agreement with the company). Geisenheimer's pay fell 49.1 percent to $1.02 million, while pay for the other four CEOs rose an average of 20.6 percent.

The pay cut for Geisenheimer and pay raises for his counterparts at Century, Ramtron and Westmoreland parallel flat financial results for Spectranetics, with a slight gain in revenue and slight reduction in loss, and improvements for the others -- double-digit revenue gains for Century, Ramtron and Westmoreland, improved profitability for Century and Ramtron, and a sharp reduction in losses at Westmoreland.

Westmoreland CEO Keith Alessi pulled down the biggest total paycheck last year -- $1.88 million, which included $492,305 in salary, $482,239 in bonuses, $884,775 in stock options and $20,576 in pension contributions and other life insurance premiums. Century Co-CEO Peter Hoetzinger took home the least -- $635,387 -- or about $15,000 less than Co-CEO Erwin Haitzmann and nearly $30,000 less than former Ramtron CEO Bill Staunton.

Although Staunton got a 67.4 percent raise in 2010 based on improved financial results, he was replaced as Ramtron's CEO by Chief Financial Officer Eric Balzer less than a month into this fiscal year after the company warned investors that a new manufacturing line was behind schedule.

Spectranetics, meanwhile, has not yet replaced Geisenheimer, but a committee of board Chairman R. John Fletcher and board members Anne Dowling and William Jennings is leading the search for a new CEO.

Copyright (c) 2011, The Gazette, Colorado Springs, Colo.

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