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Reflections on 2011

December 26, 2011 in General

The United States Proxy Exchange (USPX) is a experiment premised on the notion that a grass roots movement—by individual shareowners, for individual shareowners and funded entirely by dues of individual shaeowners—can improve corporate governance and address financial abuse. It is too early to say for sure, but based on what we achieved in 2011, the experiment appears to be working. Accomplishments included:

  • We developed simple say-on-pay voting guidelines to help shaeowners make sense of executive compensation and cast productive say-on-pay votes.
  • We drafted a model proxy access proposal that shareowners have been submitting to corporations for shareowner votes in 2012.
  • We kept a focus on the threat of virtual-only shareowner meetings, attracting media attention, including a recent Wall Street Journal article.

All the while, our members expanded their own personal efforts: attending annual meetings, submitting shareowner proposals, blogging and otherwise advocating for shareowner rights. These individual efforts, more than any other, are the measure of our success. In 2011, supporting them was a primary focus.

In June, we held a meeting of long-time supporters, who made a commitment to decentralizing our movement. The idea was that, no matter how capable our leadership may be, we can accomplish more by providing members the tools to self-organize around issues. Central to this strategy was our new social-networking website, which went live in November. Already, five members are actively blogging on the site, with social networking tools promoting their posts and ensuring a ready audience.

Our membership continues to grow. More importantly, the sophistication and commitment of our members is exemplary. With the social networking tools of the new website at members’ disposal, we are poised to make a difference.

Still, we face enormous challenges. Wall Street and corporate interests have seemilgly limitless funds to spend on lawyers, lobbyists and other enablers. They set the agenda and we respond to it. All three branches of our government—legislative, executive and judicial—are largely beholden to them. Most shares in this country—and the voting rights that go with them—are held by institutional investors, the majority of whom are profoundly conflicted.

With executive compensation at astronomical levels, those institutional shareowners approved compensation packages at 98% of corporations in 2011 say-on-pay votes.[1] Prospects for proxy access appear similarly dismal for 2012. The 2010 Supreme Court decision in Citizens United v FEC ensures that the upcoming presidential and congressional elections will be awash in corporate spending.

The 2011 Occupy Wall Street movement has fizzled for now, but it has lessons. For a time, their message that the system is broken resonated with Americans. They allowed themselves to be painted as “left wing” (mostly, they were) and failed to articulate an agenda. Certainly, one can take decentralization too far. Occupiers were disturbingly unsophisticated, earnestly debating meaningless proposals to abolish corporate personhood or restore the gold standard.

The USPX—small, sophisticated, adamently non-partisan, and with a clear agenda—can succeed in ways Occupy Wall Street could not. We plan for the long term and understand that education is a precursor to reform. Shoulder-to-shoulder, we face an uncertain future. We don’t promise success. We do promise a good fight.

Footnotes    (↵ returns to text)
  1. James Barrall and Alice Chung, Say on Pay and Related Advisory Vote Proposals, Latham Watkins, September 12, 2011

Test Driving the USPX Guidelines on Say-on-Pay

August 12, 2011 in General

Author Brett Davidson takes the USPX guidelines on voting say-on-pay for a test drive.

Brett Davidson is a member of the USPX and publishes Investletter. He serves on the committee that released the USPX guidelines for voting on say-on-pay.  In this article, he assesses those guidelines, applying them to the 36 corporations that failed their say-on-pay votes this proxy season. For that purpose, he also experiments with how the guidelines might be extended to apply to small and medium sized companies. In their current form, the guidelines apply only to large corporations.


Say-on-Pay (SOP) is finally here.  Shareholders now have a voice on executive pay levels.  So how did we do?  It appears that after the first proxy season of voting, shareholders have a very meek voice.  More than 98% of SOP proposals were approved.  This certainly is not the impact proponents of SOP envisioned when the measure was enacted.

Having worked on the United States Proxy Exchange SOP white paper, I was intimately involved with the development of the tools that were presented in the guidelines.  These tools are designed to function as a rule of thumb for retail shareholders to help guide them when voting on SOP proposals.  Having shortcut methods to determine how to vote is a great idea, but do they work?

Here is my experience with using these tools to determine how they work when applied to actual company SOP proposals.  Below you will find an analysis of 30 of the companies that saw their SOP proposals defeated this proxy season and following the discussion is the list of companies.  To write this paper I had to perform that same step any investor needs to perform to use the tools in the white paper.

Are the tools we used scientifically tested and fully vetted to guarantee they work?  Heck no!  Nor do they need to be.  The aim is to function as a rule of thumb, seeing that executive compensation is not an exact science to begin with.  Just read the proxy statements and the opinion of the compensation consultants writing them.  It is much closer to science fiction.  Each company’s circumstances are different.  Would you treat a company with a super voting class of shares the same as a company with one vote per share each paying their CEO the same amount?  I wouldn’t, but some investors might.  This ignores the fact that CEO pay in general is too high.   Detailed analysis is great but we need tools we can use now to act as an aid to help push down exorbitant pay.

Do the tools proposed in the SOP white paper support the fact that CEO pay is too high?  If the proposed tools indicate companies that should have their proposals voted down, then ideally the 36 proposals that have failed to receive shareholder support without applying the Guidelines should also fail when the Guidelines are applied. (To date 36 SOP proposals have failed to pass this proxy season.)  This by no means validates the tools, but it will indicate that they are a step in the right direction.  But, don’t take my word for it.  As a colleague of mine is fond of saying, “that’s why they play the game”.  Let’s buckle our chin straps and see how the proposed tools held up.

The 36 companies with failed SOP proposals varied considerably in size.  This presented a challenge when using the tools as provided in the USPX guidelines.  In their current form, the tools are designed to be applied to large firms only, where they stand the chance to make the biggest impact.  For purposes of this paper I felt it necessary to expand the analysis to smaller companies.  To do this I had to make some adjustment.

The easiest adjustment to make was eliminating the six companies whose market cap was less than the small company threshold.  Reducing executive pay is better accomplished by taking on large companies rather than small companies for a number of reasons: size of pay packages and media attention are two.  Executive pay was mentioned in the guidelines segregated by company size with no mention of how the companies were segregated.  A footnote was included on page ten of the paper that the data for medium and small companies was gathered from the S&P 400 and S&P 600.  I used the market cap ranges provided in the three different indexes (including the S&P 500) to break the companies into groups to compare executive pay to the median pay for similar sized companies.

Comparing CEO pay based on how large the pay is in multiples of the average workers wage was easy.  The CEO’s pay was divided into the average worker’s pay provided in the paper.  The results were not surprising.  The largest pay package was 1,108 times the average worker’s pay.  The second smallest company by market cap actually satisfied this measure.  The pay for the CEO of Shuffle Master, Inc. was a mere 30 times the average worker’s pay.  Apparently, other issues resulted in his pay package failing to receive approval.

With the threshold set at 50 times the average worker’s pay, Shuffle Master was the only company that passed the test.  In 2010, the average level of CEO pay to the average worker’s pay was 343 times.  On the basis of this prong of the two tests 29 of the 30 companies failed.

The comparison of CEO pay to the median CEO pay using companies segregated by market cap yielded this breakdown: 6 large companies; 10 medium companies; and 14 small companies.  Company size is determined as the chart below indicates.

Company Size Median Compensation
Small Cap: $300mm to $1.4b $9 mil.
Mid Cap: $1b To $4.4b $4.3 mil.
Large Cap $4b and up $2.2 mil.


All six of the large companies failed the measure by means of their CEO pay being greater than the $9 million dollar median pay for companies in the S&P 500 average.  Medium companies went down to defeat in 8 out of 10 companies and 12 of the 14 small companies failed.  Overall, 26 of the 30 companies that were analyzed failed the measure.

When the two tools were combined, Shuffle Master was the only company that satisfied both tools.  The 29 companies that failed both tests would have been strong candidates to see their pay packages voted down.  From a median pay standpoint, the S&P 500 average would have seen around 250 companies pass this test.  Of the companies analyzed only 4 out of 30 or 13% passed.  Shareholders are singling out companies that the median pay test indicates are worthy of a no vote.

So how did the tools perform in the real world?  With the objective of helping drive down executive pay the tools proposed in the paper were in agreement with shareholders in 29 of the 30 pay packages that were voted down.  Using each tool individually would have seen 29 of 30 and 26 of 30 fail the CEO pay times average workers pay and median pay test respectively.

Using the tools did take a bit of time.  Gathering CEO pay from an analysis of regulatory filings consumed most of this time.  Once all of the data was gathered the analysis took minutes.  To analyze asingle company would take about 10 minutes.  This assumes you are familiar with the website and able to navigate accessing company filings.

In live action the purpose of the tools is not to analyze whether they would work on companies whose SOP proposals were defeated.  The aim is to use the tools to analyze pay packages as companies release their yearly proxy statements…to determine which companies SOP proposals should be voted down.  After taking a dip into the pool of 2011 defeated SOP proposals, I feel confident that the two tools perform as advertised.  You will need to decide whether to use the tools together or latch on to one or the other.

By no means do the tools provide the whole picture.  The shareholders of Shuffle Master, Inc. saw something that caused them to vote down the company’s SOP proposal even though the proposal passed both of the proposed tools in the paper.  That is perfectly acceptable and shareholders always have the ability to take actions based on other issues, but it takes time to perform an analysis on that level.  Shareholders with a large number of positions may not have the time to follow through with an in-depth analysis of all of the companies in their portfolio.  The tools provide a shortcut.

With enough SOP proposals going down to defeat we have a chance to drive executive pay downward.  These two tools stand ready to help in that quest.

A few changes could prove helpful.  The addition of the median pay by company size in future revisions of the guidelines will aid in the use of the median CEO pay measure.  A mechanism is needed to make it easy for investors to obtain CEO pay levels.  A service that will gather proxy forms as they are filed and parse out the CEO pay level would make this analysis much easier.  This can be done in about 15 minutes for each company, but would be a prime candidate to be shortened by the use of automated tools.  All of the information could be provided in a database accessible to investors that would require nothing more than the company name or ticker symbol.  The database would provide the results of both of the proposed measures and the rest would be the result of concerned shareholders.

Scroll down to see the companies discussed in this article and how they fared using the USPX SOP tools.

Market X Avg
Ticker Cap in Mil. Comp Median Worker Pay
1 Hewlett-Packard HPQ $75,600 23,863,744 >$9 Failed 719 Failed
2 Freeport-McMoRan FCX $50,800 36,752,989 >$9 Failed 1108 Failed
3 Weatherford International WFT $14,090 13,163,770 >$9 Failed 397 Failed
4 Stanley Black & Decker SWK $12,450 32,730,259 >$9 Failed 987 Failed
5 Constellation Energy CEG $7,650 15,716,378 >$9 Failed 474 Failed
6 Nabors Industries NBR $7,060 13,537,486 >$9 Failed 408 Failed
7 Jacobs Engineering JEC $5,540 6,378,250 passed 192 Failed
8 Masco Corp. MAS $4,390 7,051,130 >$4.3 Failed 213 Failed
9 NVR, Inc. NVR $4,380 30,879,812 >$4.3 Failed 931 Failed
10 Superior Energy Services SPN $3,060 23,935,388 >$4.3 Failed 721 Failed
11 BioMed Realty Trust BMR $2,570 5,032,814 >$4.3 Failed 152 Failed
12 Kilroy Realty KRC $2,360 6,399,322 >$4.3 Failed 193 Failed
13 Helix Energy Solutions HLX $1,780 4,001,116 passed 121 Failed
14 Janus Capital JNS $1,780 20,337,868 >$4.3 Failed 613 Failed
15 Intersil Corp. ISIL $1,610 4,446,636 >$4.3 Failed 134 Failed
16 Curtiss-Wright CW $1,530 7,948,056 >$4.3 Failed 240 Failed
17 Umpqua Holdings UMPQ $1,340 3,731,340 >$2.2 Failed 112 Failed
18 Blackbaud, Inc. BLKB $1,220 4,552,265 >$2.2 Failed 137 Failed
19 M.D.C. Holdings MDC $1,190 9,206,403 >$2.2 Failed 278 Failed
20 Tutor Perini TPC $887 9,001,900 >$2.2 Failed 271 Failed
21 Cogent Communications CCOI $793 3,990,873 >$2.2 Failed 120 Failed
22 Ameron International AMN $786 3,930,100 >$2.2 Failed 118 Failed
23 Hercules Offshore HERO $757 2,516,064 >$2.2 Failed 76 Failed
24 PICO Holdings PICO $688 14,278,401 >$2.2 Failed 430 Failed
25 Cincinnati Bell CBB $650 20,259,761 >$2.2 Failed 611 Failed
26 Penn Virginia PVA $623 4,039,592 >$2.2 Failed 122 Failed
27 Navigant Consulting NCI $532 1,883,293 passed 57 Failed
28 Monolithic Power Systems MPWR $526 5,625,500 >$2.2 Failed 170 Failed
29 Shuffle Master, Inc. SHFL $517 1,011,591 passed 30 passed
30 Nutrisystem, Inc. NTRI $381 5,264,513 >$2.2 Failed 159 Failed

Companies Below Minimum Market Cap Levels Covered in White Paper

31 Beazer Homes USA BZH $269 6,893,362 208
32 The Talbots, Inc. TLB $221 6,268,760 189
33 Stewart Information Svcs. STC $194 1,260,276 38
34 Cadiz Inc. CDZI $156 2,324,641 70
35 Dex One DEXO $139 8,020,297 242
36 Cutera, Inc. CUTR $118 1,149,772 N/A 35

Company Size


Median Comp

Small Cap: $300mm to $1.4b $9 mil.
Mid Cap: $1b To $4.4b $4.3 mil.
Large Cap $4b and up $2.2 mil.

Times Average Worker Pay Threshhold set at 50

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.