Compensation Currents

Posted on April 23, 2009

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In my blog posts to date, I haven’t really dealt with cash compensation which is, of course, a significant component of any total rewards package. In recent days I’ve come across several compensation-related news items which I thought would be of interest to readers:

Some large companies cutting key executive benefit – According to a Wall Street Journal article, “43 companies in Standard & Poor’s 500-stock index will stop paying certain taxes for their top brass this year.” Many companies have a policy in place that provides executives and other key personnel with “gross-up” payments that are intended to make an employee whole for the taxes that are due on some other element of their compensation and/or benefits package. The article quotes one corporate governance expert as saying that the current economic crisis is viewed by “many boards. . .as a ‘once in a lifetime opportunity’ to remove abusive compensation practices.”

“Say on Pay” Resolutions – The Atlanta Journal-Constitution reports that “a proposal to allow a nonbinding vote each year on executive pay failed, although it got 36 percent support.” While that’s the main takeaway from this particular article from compensation perspective, also of note is the venue chosen for the annual meeting. The meeting took place in the Atlanta area, for only the third time, according to the article (as are many large corporations, Coca-Cola is incorporated in Delaware, and usually holds the meeting there). The article doesn’t mention any reason behind the change in location. Perhaps it was an attempt on the part of the company to appear more transparent and accountable to the company’s various stakeholders.

In other “say on pay” news, the WSJ Health Blog reports that “Pfizer shareholders voted to give themselves an ‘advisory vote’ on executive compensation, while J&J shareholders voted down a similar proposal.”

A Christian Science Monitor article published on the topic of “say on pay” on April 16 notes that “this year marks a tipping point in activists’ battle to rein in high-flying executive pay.” The article continues:

More than 100 companies face resolutions at their annual meeting this spring that would give shareholders a chance to vote on executives’ pay packages. These “say on pay” votes would be nonbinding. But with the public and Congress livid about bonuses paid to executives at AIG and other government-supported companies, boards of directors would do well to pay attention, shareholder activists say.

“By having more transparency [in executive recruitment and pay negotiations], it’s more likely that you’ll get a compensation system that will benefit or be in the interest of shareholders,” says Brad Barber, director of the Center for Investor Welfare and Corporate Responsibility at the University of California, Davis. “That would lead to a stronger relationship between pay and performance.”

But whether say on pay will actually restrict executive compensation remains an open question, say Mr. Barber and other experts.

Momentum seems to be in the reformers’ corner. At least five companies in recent weeks have announced plans to hold say-on-pay votes. Mary Schapiro, chair of the Securities and Exchange Commission, has expressed support for shareholders to have an advisory vote on executive pay packages. Congress, through the recent economic stimulus bill, has made say on pay a standard of sorts by requiring it of public companies that receive bailout money through the Troubled Asset Relief Program (TARP). Even President Obama spoke out in favor of it when he served in the Senate.

Posted in: Compensation