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Updated Model Proxy Access Proposal

March 23, 2012 in Standards

Two weeks after SEC lawyers granted six corporations approval to exclude “proxy access” proposals from their proxy materials, USPX members are already submitting an updated version of that same proposal to other corporations. Updated language addresses the flimsy pretexts for the lawyers’ decision, as well as implementing improvements to the proposal language that shareowners have recommended.

The original proposals were based on a USPX model proxy access proposal released on November 10, 2011. Today, the USPX announces an update to that model proposal, which shareowners can submit to corporations. Shareowner Kenneth Steiner received an advance copy of the update, and he has already submitted proposals based on the new language to Medtronics (MDT) and Forest Labs (FRX).

The purpose of the model proposal is to facilitate board nominations, not only by the largest institutional shareowners, but by all shareowners, including individual investors. The updated model proposal has two alternative versions. Version A is a direct evolution of the original model. Version B is based on a customization of the model, developed by shareowners Jim McRitchie and Glyn Holton for submission to Dell Corporation (DELL).

By limiting the number of proxy access nominations to less than a majority of board seats, the second version provides a strong safeguard against proxy access being used to pursue a change in control at a corporation. While Version A also seeks to avoid change in control issues, it does so primarily by prohibiting coordination of nominating groups, not by restricting the total number of shareowner nominees.

A 16 page release document presents the text of both versions followed by instructions for submission, background information and the history of proxy access. A section provides a detailed explanation of Version A. A shorter section follows that to explain how Version B differs from Version A.

Shareowners are encouraged to submit a version of the model proposal to corporations they think would benefit from it. We also encourage shareowners to experiment with modifications and/or to submit entirely different proxy access proposals of their own design and to let us know of those modifications or different proposals.

We welcome feedback, which can be posted directly on this page (log-in as a USPX member to do so) or send an e-mail at

Model Shareowner Proposal for Proxy Access

November 10, 2011 in Standards


Today, the United States Proxy Exchange (USPX) released a Model Proxy Access Proposal that can be presented to corporations for a shareowner vote under SEC Rule 14a-8 to ensure that long-term shareowners have a reasonable, but not necessarily easy, means for including board nominations in the proxy materials those corporations distribute—so called “proxy access”.

The Model Proposal is designed to achieve legitimate purposes of proxy access without including anti-democratic provisions that have marred other approaches—most notably the SEC’s vacated Rule 14a-11. It provides two alternative ways parties may qualify to nominate: one is mostly suited for large shareowners, and the other is mostly suited for small shareowners. The Model Proposal imposes no hard cap on the total number of shareowner nominations, although it provides safeguards that obstruct parties from seeking a change in control through proxy access.

The Model Proposal is released with thirteen pages of accompanying discussion. This explains how to submit the Model Proposal to corporations. It describes the history of proxy access, dating to the 1970s. It details the legitimate goals of proxy access and explains how the Model Proposal achieves these without disenfranchising the majority of shareowners.

The USPX has developed the Model Proposal as a means of stimulating debate and experimentation with alternative approaches to proxy access. Implemented as-is, it will provide a reasonable means for most long-term shareowners to participate in nominating directors.

We encourage shareowners to submit the Model Proposal or to use it as a starting point in developing their own proposals. We hope that shareowners will also submit completely different proposals of their own design. Our discussion of issues should assist shareowners in that process.

The success of proxy access depends on experimentation to find what works. The USPX is committed to supporting such experimentation. Releasing the Model Proposal is a part of our support.

Shareowner Guidelines for Say-on-Pay Voting

August 3, 2011 in Standards

Today, the United States Proxy Exchange (USPX) released standards for shareowners to use in making say-on-pay voting decisions. Congress’s new “say-on-pay” rules allow shareowners to express an opinion on executive compensation at annual meetings. But to make informed voting decisions, shareowners must first assess the compensation packages boards propose. That is not easy, since they tend to be staggeringly complex. Even sophisticated business professionals have a difficult time evaluating them, so how can average shareowners hope to do so?

This is not an idle issue. In the 2011 proxy season, institutional investors acted with breathtaking irresponsibility, collectively approving 98.3% of compensation packages. They did this as executive compensation continues to skyrocket. In 1965, CEO pay at large companies was 24 times the average worker’s wages. In 2010, that ratio was a staggering 343 to 1. Responding to the irresponsibility of institutional investors, John Harrington of Harrington Investments commented:

… if fiduciary duty, including ERISA, were truly enforced, lots of trustees, directors, administrators and managers would be in jail.

If shareowners−individual investors as well as small, medium and large institutional investors−do not start voting down the majority of compensation packages, they will have become part of the problem with executive compensation. A simple approach would be 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 would have no impact.

The USPX guidelines propose easy ways shareowners can review firms’ compensation packages and make reasonable say-on-pay voting decisions. The guidelines are predicated on the belief that some levels of compensation are so outlandish as to be unreasonable irrespective of a firm’s or CEO’s performance. The guidelines assist shareowners in deciding how and where to draw that line and then to identify compensation packages that cross the line.

On November 11, 2010, the USPX released draft guidelines for comment. Click here to review the draft guidelines and the many comments we received on them. The current guidelines reflect modest changes prompted by the feedback we received.

Drafting the guidelines has been difficult. We have had to balance the inherent complexity of the compensation issue with the need for guidelines that are both simple and relevant. The current guidelines apply only for compensation at large corporations. In future releases, we hope to extend the guidelines to small and medium corporations. In the mean time, we encourage shareowners to experiment with the guidelines and provide us with feedback. You can post feedback directly on this page using the comment form below.

Request for Comments: Say-on-Pay

May 12, 2011 in General, Standards

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, 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.

Website Upgrade!

April 6, 2011 in General, Standards

Our IT team is preparing some amazing features for our new website.

Since 2008, the USPX website has been a platform to educate and inform shareowners. Now we have transformed it into a powerful social networking platform. Members can post profiles, launch their own blogs, form groups, chat in forums, and self organize. We are just getting started using this wonderful new functionality, mostly testing it, but also starting to actually use it.

If you are not already a member, now is the time to join. You can do so directly on the site. We are excited to have you join the our community!

Standards for Securities Intermediaries to Document Clients’ Eligibility to File Rule 14a-8 Proposals

November 11, 2010 in Standards

Submitting shareowner proposals is a primary means by which shareowners influence the corporations they own. The process is governed by SEC Rule 14a-8. One provision of that rule—Rule 14a-8(b)(2)—specifies how shareowners prove they own shares in a corporation for the purpose of submitting a proposal.

In recent years, executives at a number of corporations have attempted to exploit ambiguity in that provision to reject proponents’ documentation of eligibility. These efforts have included multiple no-action requests of the SEC and the frivolous Apache vs. Chevedden lawsuit. Both the SEC staff and the Federal District Court in Houston have mostly rejected these efforts.

The controversy has raised concerns at securities intermediaries, who have approached the United States Proxy Exchange (USPX) for guidance on what constitutes acceptable documentation of a client’s eligibility to file a proposal under Rule 14a-8. In the Summer of 2010, we started work preparing recommended standards to meet this need. We suspended that work when we learned the SEC planned to issue a staff legal bulletin on the same topic. Instead, we sent the Commission a detailed letter summarizing our conclusions.

With many demands on their staff, the SEC was unable to complete the staff legal bulletin by November 2010. That is when many corporations had a deadline for submitting proposals for 2011. Accordingly, the USPX is releasing these standards as an interim solution until the Commission is able to release a staff legal bulletin.

The centerpiece of the standards is a template letter for use by securities intermediaries to use for documenting their clients’ eligibility to file a proposal under Rule 14a-8. This was developed based on a careful review of relevant no-action decisions, staff legal bulletins, and the Apache vs. Chevedden lawsuit. It also reflects informal discussions with SEC staff as well as our members’ direct experience filing many shareowner proposals.

We are releasing the standards in a full-length version, which includes notes, and in a single-page summary version, which will be convenient for shareowners to e-mail or fax to their bank or broker.