Risk & Compliance

Working Group Eyes ”Say on Pay”

Companies, investors will explore the possibility of advisory votes on executive compensation.
Stephen TaubFebruary 8, 2007

A number of major companies and activist investors have formed a working group to determine the feasibility of giving shareholders an advisory vote on executive compensation, reported the Associated Press.

The group, which will first meet on Friday at the Manhattan offices of investment firm TIAA-CREF, is led by Pfizer, the American Federation of State, County and Municipal Employees (AFSCME), and investment firm Walden Asset Management, according to the AP. Intel, Bristol-Myers Squibb, Schering-Plough, American International Group, JPMorgan Chase, and Colgate-Palmolive will also reportedly participate.

The “say on pay” movement, as these advisory votes are collectively known, reflects growing investor concern with executive compensation.

Last year, AFSCME became the first shareholder to submit such a proposal; it received 44 percent support at Sun Microsystems and Countrywide Financial, 43 percent support at Sara Lee, 41 percent at US Bancorp, and 40 percent at Home Depot, according to the union.

So far in 2007, according to Institutional Shareholder Services, investors have filed at least 129 proposals dealing with executive pay, including at least 38 that call for an advisory vote to ratify the compensation of named executive officers. For its part, this year AFSCME has submitted a “say on pay” proposal at Affiliated Computer Services, Morgan Stanley, Bank of New York, Citigroup, Wachovia, Qwest Communications, and Ingersoll-Rand and resubmitted a proposal at U.S. Bancorp, Merrill Lynch, and Countrywide Financial.

Just what the “say on pay” is actually saying is a concern, according to Cary Klafter, vice president of legal and corporate affairs for Intel. “We have to be able to appropriately interpret the message, or we won’t know what to change,” Klafter told the AP. The shareholder advisory votes, she reportedly added, will do little to inform boards about the elements of a pay package that investors think need fixing.