Under Say on Pay, most shareholders approve executive pay packages

Shareholders of Gannett last week approved an $8.45 million pay package for the company’s chief executive.

The McLean-based media company, which owns USA Today, is one of the latest in a string of local firms to receive shareholder approval — in this case, 92.97 percent — for its compensation of top executives.

Two years after the implementation of “say-on-pay” provisions — which allow shareholders to vote on proposed salaries, stock options and bonuses — analysts say not much has changed in the way of large executive pay packages. But they say the measures, while nonbinding, have opened up lines of communication between a company’s board and its shareholders.

Say-on-pay “has been effective in some ways, but it has not been a revolution,” said Fabrizio Ferri, an assistant professor at Columbia Business School. “By and large, levels of compensation keep increasing every year, and shareholders have not — except in a very few cases — pushed back.”

Shareholders at the vast majority of companies — 94 percent, as of April — pass say-on-pay with more than 70 percent approval, according to data compiled by the Semler Brossy Consulting Group in Los Angeles.

So far this year, shareholders of Rockville-based Choice Hotels International approved compensation packages for the company’s executives with a 92.79 percent vote. Other area businesses that have passed similar measures include Sandy Spring Bancorp (with a 90.78 percent approval rate), RLJ Lodging Trust (98.35 percent) and Under Armour (99.87 percent).

When shareholders do reject a particular package — as in the case of Georgetown-based Cogent Communications in 2011 and again this year — it forces the company to listen to investors’ concerns, said Aaron Boyd, head of research for Equilar, an executive compensation research firm.

“We’ve seen failures for a variety of reasons,” Boyd said. “The primary complaint is misalignment between pay and performance, but we’ve also seen situations where the investors are not happy with excessive perks. Typically what [companies] will do is they’ll reach out to shareholders, have discussions and make adjustments where they feel they are appropriate.”

In April, Cogent shareholders voted against the company’s executive pay package, which included $8.75 million for the chief executive even as the firm reported a $4.25 million loss in 2012.

Only 39.29 percent of shareholders approved the company’s pay package. Last year, when the chief executive’s package totaled $1.7 million, 68.32 percent of shareholders approved the deal. The company could not be reached for comment.

“Most companies that have significant opposition do respond to shareholder requests,” said Ferri, of Columbia Business School. “It’s very hard for boards to ignore if there are 30, 40, 50 percent of shareholders against the plan. It’s bad publicity, there’s a lot of pressure in terms of reputation.”

Several area companies, including First Potomac Realty Trust, Pepco and Northrop Grumman, are set to vote in coming weeks. Shareholders of all three companies approved compensation packages in 2011 and 2012.

Already this year, there have been fewer instances of shareholders voting against pay packages than in the past two years, Boyd said, adding that more companies are learning to listen to their shareholders. Plus, the improving stock market has helped keep investors happy.

“What the shareholders care about, obviously, is returns,” Boyd said. “Are they getting money back? Are they seeing dividends and stock price growth? As long as they’re getting that, they’re much more accepting of higher pay packages.”

Abha Bhattarai covers local banking, retail and hospitality for The Washington Post’s Capital Business section. She has written for The New York Times, The Wall Street Journal, Reuters and the St. Petersburg (Fla.) Times.
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