Request for Comments: Say-on-Pay

If average shareowners believe the vast majority of executives are excessively compensated, then collectively they should vote to reject the vast majority of compensation packages.

The USPX is releasing draft guidelines for shareowner’s to use in making say-on-pay voting decisions. Comment letters are due by June 2. We hope to have the finalized guidelines out by later this summer.

In 1965, CEO pay at large companies was 24 times the average worker’s wages. By 2007 that number had increased to 275 times. Executive compensation receded during the 2008 financial crisis, but it bounced back in 2010, rising 27% to a median of $9 million at large corporations.[1]

The aggregate compensation paid by public companies to their top-five executives during the period 1993-2003 totaled about $350 billion, and the ratio of this aggregate top-five compensation to the aggregate earnings of these firms increased from 5 per cent in 1993-1995 to about 10 per cent in 2001-2003. This dangerous trend is re-purposing the nature of the firm.

Executive compensation is a crisis. But you wouldn’t know it from say-on-pay votes so far this proxy season. In a webinar earlier this week, Equilar indicated that 77.4% of votes at S&P 500 companies have so far resulted in 90% shareholder support for boards’ pay practices. The problem is that shareowner voting is dominated by the largest institutional investors and the proxy advisory firms they hire. Based on their business-as-usual approach to say-on-pay votes, neither acknowledges a crisis. Their attitude appears to be that a “sky’s the limit” approach to executive compensation may facilitate possible “sky’s the limit” executive performance and “sky’s the limit” gains to shareowners. This is absurd.

If average individual and institutional shareowners believe the vast majority of executives are excessively compensated, then collectively they should vote to reject the vast majority of compensation packages. It is imperative that we avoid a situation where executives pay themselves $10 million, $20 million or $50 million after receiving say-on-pay approval from their shareowners. If that happens, shareowners will have become part of the excessive pay problem rather than part of the solution. To avoid that outcome, shareowners must find a way to stand on principle and vote against executive compensation packages at most firms.

Today, the USPX is taking the first steps to provide such a way. Our draft guidelines provide practical advice for average individual and institutional shareowners for making say-on-pay voting decisions.

A simple approach to say-on-pay voting would be for shareowners to vote against all executive compensation packages, but that would be self defeating. If boards know compensation packages will be voted down no matter what they contain, those boards will have no incentive to make changes. Since say-on-pay votes are advisory, they will have no impact.

To make informed say-on-pay voting decisions, shareowners must first assess the compensation packages boards propose. That is not easy, since those packages tend to be staggeringly complex. In this regard, say-on-pay is a Gordian Knot. If shareowners can assess compensation packages—untangle the knot—they will have a tool to put the breaks on absurd executive compensation. But how to untangle the knot?

We recommend shareowners need not attempt a qualitative assessment of the various features of a compensation package. They can simply base their analysis on the total value of compensation paid in the previous year. This solution is in the spirit of Alexander The Great’s original solution of cutting the Gordian Knot. Transforming say-on-pay votes from ex-ante to ex-post is straightforward and effective.

We propose two general tests shareowners can apply in making their say-on-pay voting decisions. The first is based on a ratio of executive compensation to median worker compensation. For example, a shareowner might elect to vote against compensation packages of any firm at which that ratio exceeds 100 over the previous year. Another shareowner might choose to vote against any for which that ratio exceeded 20.

The second test is based on median executive compensation. For example, one shareowner might choose to vote against compensation packages of any firm at which executive compensation exceeding that median in the previous year. Another might vote against compensation packages of any firm if executive compensation exceeded 90% of that median.

The draft guidelines offer much more—insights, advice and things to look out for—than I will attempt to summarize here. If you agree executive compensation is a crisis, please take time to read the document and send us a comment letter by June 2. Send your comment letter to contact@proxyexchange.org, and put “Say-on-Pay Guidelines” in the e-mail subject line. Letters will be posted to the USPX website, unless you indicate you would rather remain anonymous.

Thank you for helping make a difference.

Footnotes    (↵ returns to text)
  1. All numbers cited in this article without a reference are also cited in the draft guidelines. References are provided there.

30 Responses to Request for Comments: Say-on-Pay

  1. John Harrington May 12, 2011 at 7:01 pm #

    Good work on “Say on Pay”. I admit, however, that we vote our proxies against all comp plans, and I opposed advisory votes on the ballot for the simple reason you mentioned; they are advisory, are meaningless, and we knew that large institutions would vote to support management, thus institutionalizing higher and higher pay scales for corporate oligarchs. Unfortunately, institutional investors are their beneficiaries’ worst enemy and if fiduciary duty, including ERISA, were truly enforced, lots of trustees, directors, administrators and managers would be in jail.

  2. Alexandra R. Lajoux May 14, 2011 at 10:25 am #

    I will repeat the NACD’s comment letter, dated November 18, 2010.

    “NACD appreciates the symbolic value of say on pay. However, we believe that it is a poor substitute for dialogue. It is much more valuable to have shareholder communication well in advance of plans or votes on plans.”

    “Say on pay is a yes or no, backward-looking vote that may have little utility except to express a very general shareholder view of a pay plan already in effect. Our surveys show that an increasing number of companies have been holding meetings with their institutional shareholders. This may explain why say-on-pay votes for early adopters have been positive, in the main. For companies that have had successful communications with their shareholders, say on pay may become a meaningless ritual. Companies and shareholders alike may find it burdensome as a strict and universal requirement. “

  3. Jesse Fried May 15, 2011 at 11:14 am #

    I applaud you for trying to come up with workable guidelines for voting on SOP. My only concern is that it is likely to be undesirable to use a test based on a ratio of CEO pay to median employee salary within the same firm.
    Consider a CEO who is thinking about a union demand to raise wages at the firm by 10%. In a world where CEO’s pay is benchmarked against median pay, the CEO will have less incentive to resist this demand, and this would be bad for shareholders. They would also have an incentive to outsource jobs.

    Your suggestion to look at the ratio of CEO to average worker pay in the Economy (not the firm) does not have this problem — because the CEO cannot affect average worker pay in the economy as a whole. I am not sure that benchmarking CEO pay to average worker pay in the economy is necessarily a good idea — it just does not have the 2 problems associated with benchmarking CEO pay to average worker pay in the firm, over which the CEO has control.

    As for voting down pay packages that exceed median CEO pay — I need to think about that more. My concern is that you may not be necessarily targeting overpaid CEOs. Could be that most of the highest paid CEOs deserve their pay, and the ones below median don’t.. Another approach might be to target CEOs who get above median and whose firms are not doing well or have had corporate governance problems…

  4. anonymous May 15, 2011 at 4:40 pm #

    Paragraph 1, For context and background, consider adding some or all of the following GAO information:

    According to the GAO, “Over the past 25 years, the number of defined benefit (DB) plans has declined while the number of defined contribution (DC) plans has increased. Today, DC plans are the dominant type of employer-sponsored retirement plans, with more than 49 million U.S. workers participating in them. 401(k) plans currently cover over 85 percent of active DC plan participants and are the fastest growing type of employer-sponsored pension plans. Given these shifts in pension coverage, workers are increasingly relying on 401(k) plans for their pension income.” (http://www.gao.gov/products/GAO-10-153T, 401(k) Plans: Several Factors Can Diminish Retirement Savings, but Automatic Enrollment Shows Promise for Increasing Participating and Savings, October 28, 2009, Summary).

    “As the life expectancy of Americans continues to increase, the risk that retirees will outlive their assets is a growing challenge. Today, couples both aged 62 have a 47 percent change that at least one of them will live to their 90th birthday. In addition to the risk of outliving ones’ assets, the sharp declines in financial markets (emphasis added) and home equity during the last few years and the continued increase in health care costs have intensified workers’ concerns about having enough savings and how to best manage those savings in retirement.” (http://www.gao.gov/products/GAO-10-632R, Retirement Income: Challenges for Ensuring Income throughout Retirement, April 28, 2010, Summary).

    Although, “[s]tock market gains helped drive up balances in the average U.S. 401(k) retirement-savings account according to a record $74,900 as of March 31, according to Fidelity Investments. (http://www.reuters.com/article/2011/05/11/us-retirement-fidelity-idUSTRE74AOL720110511, Average 401(k) balance near $75,000: Fidelity, May 11, 2011)

    “GAO found that 40 executives for 10 companies received approximately $350 million in pay and other compensation in the years leading up to the termination of their companies’ underfunded pension plans. GAO identified salaries, bonuses, and benefits provided to small groups of high-ranking executives at those companies during the 5 years leading up to the termination of their pension plans. For example, beyond the tens of millions in base salaries received, GAO found that executives also received millions of dollars in stock awards, income tax reimbursements, retentions bonuses, severance packages, and supplemental executive-only retirement plans. In some cases, plan participants had their benefits reduced due to the underfunding of the plan when it was terminated. For example, a retired pilot saw his monthly pension payment reduced by two-thirds.” (http://www.gao.gov/products/GAO-10-77, Private Pensions: Sponsors of 10 Underfunded Plans Paid Executives Approximately $350 Million in Compensation Shortly Before Termination, October 21, 2009, Summary).

    Both retail and institutional investors are alarmed by today’s outrageous level of executive compensation. In 1965, CEO pay at large companies was 24 times the average worker’s wages, according to a study by the Economics Policy Institute. By 2007, this had increased to 275 times the average worker’s wage… (consider adding the following) “By 2010, CEO pay had grown to 343 times workers’ median pay – by far the widest gap in the world.” (http://www.aflcio.org/corporatewatch/paywatch/ceopay.cfm).

    “Slower earnings growth and closer scrutiny by shareholders are expected to hold the typical increase in CEO pay packages below 10% this year…But many executives are in line for big payouts from stock and stock options granted during the financial crisis, when share prices plunged…The expected smaller gain in compensation also reflects the intensified shareholder pressure about executive pay, particularly when it seems unrelated to performance…Compensation consultants say that the most vulnerable perks are those without a clear business purpose, such as country club memberships, cars for personal use and supplemental retirement plans.” (Wall Street Journal, Raises, Bonuses to Slow, Weaker Profit Growth Puts Bite on Compensaton; Stock Grants Can Ease Pain, May, 9, 2011, p. B7)

    On page 5 – When you briefly talk about ISS and Glass Lewis, I think it would be helpful to reference their primary evaluation factors for executive pay (http://issgovernance.com/files/ISS2011USPolicySummaryGuidelines 20110127.pdf at pages 37 through 41, 5. Compensation, and http://www.glasslewis.com/solutions/proxypaper.php and http://www.glasslewis.com/downloads/policies/Pay-For-PerformanceDescription.pdf).

    On page 6 – Where MoxyVote.com is referenced, it might be good to add a sentence or two indicating how investors can find out how some of the large public pension funds vote like CalPERS etc. I saw that MoxyVote.com did feature the Florida SBA, which is good.

  5. Stephen Davis May 16, 2011 at 12:09 pm #

    Really interesting paper, and one that should kick off a debate on what precisely investors are supposed to do with SOP. Of course most retail investors may only devote a couple of minutes to the decision, so your benchmarks might not even be quick enough. One I’ve encountered is that people vote no on all things compensation if a board recommends a three year, as opposed to one year, SOP.

  6. Rick Hausman May 18, 2011 at 9:10 am #

    These initial U.S. Proxy Exchange guidelines represent some significant steps for us shareholders in extricating ourselves from the executive-compensation morass that is sapping our capital, both financial and social. There remain several more steps to reach the edge of the swamp, some of them giant ones.

    USPX has taken Step One in underscoring the magnitude of the problem. In Step Two, USPX points to an elephant in the room: those of us who have worked to get the advisory votes on compensation on ballots may have won a Pyrrhic victory. Each year pay packages are being overwhelmingly endorsed by (mainly institutional) shareholders. Since shareholders are willingly granting their imprimatur, it’s no wonder that most companies are now recommending an advisory vote each year on their proxy ballots.

    Step Three is generating the guidelines themselves. The USPX proposals aim to simplify the criteria for a yea or nay vote on compensation. They attempt to walk the line between too rudimentary, and therefore unfair or naîve, and too complex and thereby repeating the current obscurantist situation. It’s a beginning. Real success in deveoping guidelines will depend on stringent SEC rules implementing the Dodd-Frank provision that requires disclosure of the ratio of exec. compensation to medium worker pay. And any voting criteria using those guidelines will have to account for company size.

    We in the USPX will need more backbone than these rules provide if there is going to be movement around them. The suggestion that each shareholder pick a ratio that suits her/him will hardly rally the troops. But at least the initial stab is out there to be discussed and modified as necessary. (Personally, I like the ratchet-down proposal–vote no on compensation unless it is below, say 90%, of last year’s comp. This compensates for the Lake Woebegone effect.)

    If/when executive compensation at publicly traded companies is reined in, the next step–and an even larger wedge of the pie–will be hedge-fund compensation…

  7. anonymous May 18, 2011 at 2:43 pm #

    In my view, you are barking up the wrong tree on the internal pay equity issue. I don’t see that as a driver or likely to become a driver for executive comp packages. I also don’t think most investors would agree that a majority of execs are overpaid. Under your approach, Warren Buffett and Bill Gates would have received against votes for all the years of their service at Berkshire and Microsoft. I don’t think that would have a been a good outcome for shareholders. I think the question is whether the execs are paid in a way that is consistent with the performance of the business and relative to what you could pay another exec to do their job.

    I think its a great idea to propose and solicit discussion on some agreed upon principles and guidelines for how to go about this. I think the more investors are on the same page the better. All the more reason to be careful about what you propose and tailor it to be a proposal that a good number of institutions can get behind.

    I wouldn’t poke at the proxy advisory firms. They only advise investors. No one has to listen. If investors do then that’s their issue and if anyone is to blame for not doing a thoughtful job of voting on their own, its not advisory firms. I think you turn off institutions when you have go after their research providers. You should go directly after the institutions if you think they aren’t doing the job but the adviser issue is a red herring in my view.

  8. Doug Chia June 3, 2011 at 5:10 pm #

    To reduce the entire Say On Pay decision to two simplistic ratios without regard to anything else seems to go against the principles of robust disclosure and meaningful analysis. Is this really what you are striving for? It’s counterintuitive to me. On the other hand, saving everyone the time and resources from having write and read endless CD&A and compensation table disclosures could free us up to do other things that may more directly relate to shareholder value.

  9. John Richardson June 4, 2011 at 3:47 pm #

    Given the gross complexities in assessing executive pay, I think that your calculus is as good as any other in facilitating a decision by retail shareholders. I must say that the complexities have been created by the companies themselves and any calculation that might oversimplify this analysis falls on their shoulders alone.

    As a simple exercise, look at your next proxy statement and count the number of pages in the document addressing executive pay issues. I have found that this subject consumes somewhere between 70% and 80% of most proxy statements. Companies bear the responsibility for obfuscating any reasoned assessment of pay by shareholders because of this very complexity. If an investor can come up with a reasoned way to come to a decision on voting on pay issues, great. The alternative is to not vote at all, which serves the interests of the companies since it supports any plurality vote that a company seeks to achieve.

  10. Nell Minow June 4, 2011 at 4:24 pm #

    I don’t support ratio tests. I support guidelines that look at the return on investment of every dollar spent on pay, clawbacks, the clarity and difficulty of targets, the appropriateness of peer groups used for comparison, and the mix of long- and short-term compensation. I do support tying votes on comp committee members to no votes on pay.

  11. Heather Booth June 4, 2011 at 6:41 pm #

    Excessive executive compensation and the striving for it, is a driver to the reckless speculation that helped to crash the American economy and leave millions jobless and cost billions in retirement money. Until that system is changed, there are few consequences for irresponsible executives and boards. In addition, the growing inequality in this country, in itself, is a cause of instability, less democracy (because voices with such inequitable financial backing speak so much louder than others) and hardship for most people–and a fraying of the social fabric.
    With this in mind, I support whatever measures bring transparency, accountability, and some sanity to the system of executive compensation and say on pay is one step in this improved direction.

  12. Chuck oneil June 4, 2011 at 8:02 pm #

    Unfortunately I haven’t kept up on Facebook. It is rare that it has any thing of import like this so it is one of the last things I read.

    I think anything that shareholders can do to communicate their dis pleasure with executive (not just CEOs) is worth it even if it is simplistic and advisory. Some action is better than none. I am surprised at the commenters who would do nothing because the proposal doesn’t go far enough. Some action is needed and is much better than none.

    Bill gates is great at marketing (he didn’t build or invent DOS or windows. He created a monopoly and took advantage of that to buy or steal the work of others. Shareholders of Micro soft are better off because of the unfair monopoly Gates was able to create. I don’t think people getting rich because of their ability to take unfair advantage of others is something that is desirable for our society or economy.

    Birkshire hathaway did’t create any real wealth. They just purchased other companies that had the potential to do well. Are we really better off because one person was skilled at buying and selling companies. One thing they did was to close down plants that were only marginally profitable. People were put out of work for the benefit of a few rich shareholders. I don’t think large salaries are justified for those who destroy the lives of workers. Perhaps they do what was necessary but putting people out of work doesn’t deserve huge salaries.

    Chuck

  13. Mark Rome June 4, 2011 at 8:04 pm #

    John Harrington put it best, “institutional investors are their beneficiaries’ worst enemy and if fiduciary duty, including ERISA, were truly enforced, lots of trustees, directors, administrators and managers would be in jail.”

    The challenge with executive compensation is balancing performance with accountability and culpability. In the healthcare industry, look at the history of health care enforcement, we’ve seen a number of Fortune 500 companies that have been caught not once, not twice, but sometimes three times violating the trust of the American people, submitting false claims, paying kickbacks to doctors, marketing drugs which have not been tested for safety and efficacy,” said Lewis
    Morris, chief counsel for the inspector general of the Health and Human Services Department (http://www.businessweek.com/ap/financialnews/D9NI94V01.htm). “If writing a check for $200 million isn’t enough to have a company change its ways, then maybe we have got to have the individuals who are responsible for this held accountable. The behavior of a company starts at the top.”

    At some point, institutional investors need to step up and ask, “is your performance legal, ethical and sustainable,” and hold the C-Suite and Board accountable and culpable; e.g., BP, Massey Energy, Johnson & Johnson, AIG, Lehman Brothers, Goldman Sachs, etc.

  14. Leslie Levy June 4, 2011 at 9:33 pm #

    Let’s begin with an overview of our nation’s economic condition. We are in dire trouble, and every indication is that it’s going to get worse. Our situation in many ways is like Britain’s after WW II. Partly because we helped so many and so much, we are now without adequate resources. Congress and the President were trying to create markets. They didn’t grasp that, in the process, they were also creating powerful competitors.

    Also, as Nell Minow notes, we are becoming a two-class society. The super-rich, many of whom can afford to learn about technology, are spending like mad and largely on luxury goods. This kind of spending does not create jobs. The rest of the population is increasingly without jobs and hence the means to survive or any way out of their dilemma. CEO pay is only one of the problems in this much larger picture. We need to expand our horizons and look at who gets and who doesn’t get money and how that issue plays out within the entire financial and political and economic, etc., system. Because the problem is systemic, it needs to be addressed systemically.

    Say-on-pay is a nit within this context. First, it was, in my view, ill-advised to propose something only advisory. What if our forefathers had said, “Let’s propose a revolution against Great Britain. Mind you, even if most of us want it, no one has to do anything about it.” No one gets worked up about advisory proposals. I realize they were intended as a first step, but they achieved nothing, as far as I can see. The corporate sector is breathing easy after this year’s proxy season with respect to say-on-pay.

    Second, am I the only one to comment that one reason big investors don’t object to CEO pay is that, when CEOs get paid a lot, so do big investors? If we’re going to get worked up about obscene pay, we shouldn’t forget this year’s monetary compensation on Wall Street, no small potatoes in this year of unemployment and other ills.

    Third, considerable confusion exists about how to determine compensation and exactly what compensation includes. Money is not the only form of compensation, though since the SEC ruled that all compensation must be reducible to dollar terms, we have lost the ability to provide non-dollar incentives that are often more powerful than dollar ones. Think about how far you get with your kids when you use “bribes” to get them to do what you want. Research has demonstrated over and over that monetary compensation is weak, compared to other forms, except to a certain sector of the population. So, by emphasizing or restricting ourselves to monetary compensation, we get CEOs who adore money. I don’t think it’s a great idea for a bunch of Gordon Geckos to be running our corporations.

    Of course, CEO compensation is a thorny and very difficult problem. I’m writing a book on boards and governance and have quite a lot to say about compensation. I don’t want even to try to say in this limited space everything that will appear in the book, but I guarantee you that it will be a shocker. In that less than humble spirit, may I suggest that we go back to the beginning and ask ourselves just what compensation is and how the system currently works before we suggest less than well-informed solutions. However hard you may find this to believe, many, many members of compensation committees would be delighted to discover a system they could use to make compensation decisions in a more rational form than is now possible, i.e., in a form that produced the intended results. These guys aren’t villains (with some exceptions, of course). I don’t believe that anyone yet knows how and why and when compensation decisions should be made. By default, we end up overpaying. I’ll have more to say when the book is ready.

  15. Andrew Shapiro June 5, 2011 at 2:18 pm #

    In general, I find precatory voting matters of limited value in the companies most needing activist change. So I echo Nell’s support of tying votes on comp committee members, to no votes on pay, especially where a majority vote rule is in place.
    The appropriateness of peer groups used for comparison has long been the form of abuse of ‘good’ companies but with the increased disclosure in this area occurring, I think the clarity and difficulty of targets will be the future escape valve for comp committees in these ‘good’ companies and need to be scrutinized. So like Nell. I would support guidelines that look at the return on investment of every dollar spent on pay, clawbacks, the clarity and difficulty of targets, the appropriateness of peer groups used for comparison, and the mix of long- and short-term compensation.
    My highest priority in these decisions is not pay equity. I don’t support a bright line ratio test to drive my decisions without higher precedence with respect to matters I cited above. However, I do find, in almost all circumstances, piggish executives towards shareholders are piggish with respect to pay for non-executive employees. So your pursuit on this issue will have some favorable carryover to matters of greater importance to Lawndale. So I applaud and support your efforts.

    I would like to add something more to the critical thought, here. Another area where Pay equity comes into play for Lawndale is in our focus on Micro- and Small-cap public companies, the question often arises “why a company is our should a company ought to be public?”.

    The lack of pay equity is emblematic of the agency problem permeating public companies. One of the factors is the potentially low cost of capital available should a company have a great story and growth prospects that it attracts a high valuation multiple. However as a deep value style investor we are often involved with companies at very low valuation multiples. Some of these companies are not so exciting and it raises the above question about being public. In a low multiple company where equity is a key form of employee compensation, being public offers not only liquidity, but a readily available means for employees and companies alike to attach a measurable value on this compensation. However in a company that lacks pay equity and a high multiple (lower cost of capital) we seriously ask the question why a company is public and should a change of control and/or take private transaction be the optimal sought after outcome. Presumably a private equity or managerial owner would more appropriately balance pay equity and the company’s overall performance than a group of comp committee members delegate powers from a highly decentralized powerless public shareholder base.

  16. Sarah Wilson June 6, 2011 at 7:39 am #

    Dear all;

    I was going to spend a few days last week composing something detailed drawing on the European experience of say on pay. Unfortunately I got side tracked by what Andrew so aptly described as a “piggish company” taking exception to the publication of the facts about their exec comp and who has spent the best part of a week throwing top tier lawyers at us in an attempt to shut us up.

    I will therefore be brief:

    Guidelines with ratios and standardised parameters are open to abuse and being “gamed” by the executives and their advisors. One size does not fit all and we are in dangerous territory if we even attempt to put companies onto some cookie cutter methodology. Movie Mom is right – there is nothing better than detailed scrutiny and close observation by the owners. Non-binding votes are a useful “yellow card” but nothing focuses the mind like knowing something or someone will be voted off. Shareholders are reluctant to do this because it is a failure of engagement. At least in most global markets a failed vote on a director or share plan is binding. Pieces by Stanford like this are not promoting a healthy debate http://tinyurl.com/5sg6gkj Having done the S&P 500 for the first time by ourselves this year all we can say is, lawyers get paid far too much to produce such dreadful documents. Less really can be more. Anything which attempts to up the quality of the debate is very welcome and should be encouraged.

    The regulatory framework in the US does not appear to say much about quality voting and governance, just quantity. Any initiative to reform say on pay behaviours should not miss the opportunity to tweak the other regulations which impact other behaviours too. Perhaps we might also suggest that the bunching of the US proxy season makes it a bad time of year to have anything like a reasoned debate. And then when folks propose good ideas like the 5th Analyst Call they are accused of wanting “inside information”. Seems like there’s no winning for diligent owners.

    I don’t want to use this forum to shill for business. The most important point here is that more shareholders need to make the connection between governance decisions and investment decisions and not depend on auto-pilot voting as a substitute for thinking. That’s not going to happen if as Peggy rightly points out, the governance folks are kept in the basement and deprived of quality resources.

    Best wishes

  17. Ron Freund June 6, 2011 at 3:06 pm #

    I would echo those who have pointed out the potential futility of advisory votes. I think the energy should also be spent on placing binding by-law resolutions on the proxy ballots. If this cannot be done with this type of resolution, then possible SEC or legislative remedies should be pursued (probably after the 2012 election if the House reverts to sanity.)

  18. Adam Foulke June 7, 2011 at 4:36 pm #

    Thank you for publishing the position paper on SOP. The quality and quantity of the comments above demonstrate that USPX’s effort to stir reasoned debate to encourage corporate governance reform is right on target.

    I agree with many of the comments above that SOP advisory votes are toothless. I don’t think they are useless, though. The affirmative action required of shareholders inherent in casting a vote one way or the other brings needed attention to the issue of executive compensation. I’m not a proponent of using a fixed ratio to determine a vote, but strongly agree that pay should correlate with performance. That’s going to be different strokes for different folks, so shareholders are going to have to flex analytical muscles. If it’s deemed that executive compensation is excessive, I absolutely agree that compensation committee directors should be voted against. That’s good old fashioned accountability.

    Regarding the ratios, I do think that prominent disclosure of the Peter Lynch-esque metric in the proxy statement could result in positive change. If you’re going to pay a NEO a relatively obscene amount of money, why not just be up front about it? Shareholders and stakeholders alike will benefit from knowing that the NEO is valued at X times the average and/or median employee. I can see it playing out that after a period of time, if the NEO isn’t living up to the stakeholder standards, disruptive (and positive) change could happen more quickly. As a father of three boys, I don’t underestimate the power of competitiveness. Bright minds who feel they are unfairly compensated or mistreated will move on to other ventures. My hope is that increased economic activity, in the form of start-ups, will result.

    Thanks again for diving into this can of worms. The debate is truly important to our capitalistic democracy.

    • Adam Foulke June 13, 2011 at 2:29 pm #

      One follow-up suggestion on ratios, based on policies adopted by some large pension funds, is that USPX may want to consider looking at the ratio of CEO pay versus the next highest paid NEO. At some level, I’ve heard a ratio of 3-1 thrown about, the company may be facing a serious succession plan weakness.

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    [...] I’m relatively sure I recommended against a majority of pay packages for companies in my portfolio, based on USPX draft guidelines. [...]

  9. CorpGov.net » Dell (DELL): How I Voted - July 11, 2011

    [...] presidents, was the highest paid named executive officer at a little over $11 million. Using the United States Proxy Exchange (USPX) released draft guidelines, I am voting against most pay packages over the median for large-caps [...]

  10. CorpGov.net » Median CEO Pay Up Again: My Apologies - July 13, 2011

    [...] I need to apologize? I’ve been using USPX guidelines to vote down pay packages at large companies over the $9 million 2010 median reported by Equilar [...]

  11. CorpGov.net » Say-on-Pay Voting Standards Released - August 4, 2011

    [...] November 11, 2010, the USPX released draft guidelines. We received many comments and we made several modest changes prompted by the feedback we [...]

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