HP, Intel Add Voices to Say on Pay

Some companies, U.S. House support advisory votes on executive compensation

By James Hyatt

In mid-January, Hewlett-Packard said directors would allow shareholders at its 2010 annual meeting to vote on whether the company should conduct an annual nonbinding advisory stockholder vote on executive compensation.

If it is approved, the advisory vote will be taken at the 2011 annual meeting “and each year thereafter,” the company said. And, HP added, it supports federal legislation giving shareholders “an opportunity to express their views on the executive compensation policies of publicly held companies.”

Two weeks later, Intel Corp. also agreed to include an advisory vote on executive compensation at its 2009 annual meeting. An Intel spokesman said, “In our view, the proxy proposal on executive compensation is a reasonable thing to do. So we took the suggestion and will go forward with the advisory vote. There’s no good reason to wait for Congressional legislation to have this kind of dialogue on such an important issue.”

An investor network of institutions and individuals has filed resolutions at more than 100 U.S. corporations for the 2009 proxy season seeking an annual advisory vote on executive pay. Similar resolutions in 2008 reached a vote at more than 80 companies and received an average 42 percent of votes; at 11 companies the measure received majority approval.

Other companies that will adopt the advisory vote include Verizon, Aflac, Blockbuster, Motorola, MBIA and Ingersoll Rand.

“Shareholders expect compensation committees to establish appropriate measures that tie executive pay to company performance,” said Connecticut Treasurer Denise L. Nappier. “Say on pay is a way for shareholders to signal to the board whether the company has given appropriate incentives to executives by linking pay with performance which in turn indicates how effective the board is in representing shareholder interests.”

The U.S. House last year approved a measure requiring nonbinding advisory votes, which President Barack Obama endorsed when he was a senator. And the SEC’s new chairman Mary Shapiro has indicated support for shareowner votes on executive compensation.

Financial firms receiving “exceptional financial recovery assistance” will be required to permit “say-on-pay” resolutions and the new Treasury department policy outlined above declares that shareholders at financial institutions—even if they don’t receive financial recovery assistance—“should have a nonbinding resolution on both the levels of executive compensation as well as how the structure of compensation incentives help promote risk management and long-term value creation for the firm and the economy as a whole.”

Writing in the New York Law Journal in November, Charles Nathan and Dennis Craythorn of Latham & Watkins observed that “while the number of say-on-pay proposals taken to shareholders has increased dramatically, the average support for the proposals remained flat at around 40 percent. A recent survey of the largest institutional investors published by the Center on Executive Compensation found that about half of the survey group [was] strongly opposed to say on pay, with only a quarter in favor.

This opposition among many institutional investors may help explain why say on pay has not become the stunning success many expected. It is probable, if not inevitable, that the seething anger over "excessive" executive pay among retail investors, Congress and the press will spill over to institutional investors, which dominate the ownership rolls of public companies, causing many to reconsider their stance on say on pay.”

Posted March 5, 2009 in Politics & Legislation