Bailed-Out Firms Clamber to Satisfy Say-on-Pay Proviso

Washington Post Staff Writer
Wednesday, April 8, 2009; Page A11

NEW YORK, April 7 -- Nearly 400 companies that have accepted taxpayer funds are working to meet a new federal mandate that allows shareholders to vote on executive compensation packages at annual meetings this spring.

The rule, contained in the stimulus package adopted in February, represents a significant expansion of a fledgling say-on-pay movement that has taken hold in recent years at a handful of companies. Emboldened by the federal requirements, activist investors are pushing to have similar measures adopted at all public companies. The issue has had the backing of key legislators and appeared headed for approval this year. But yesterday, a key congressional committee said more stringent measures may now be needed instead.

"Say on pay might be too mild at this point," said Steven Adamske, spokesman for the House Financial Services Committee led by Rep. Barney Frank (D-Mass.).

The committee expects to deal with executive compensation as part of regulations being considered to address broad risks in the financial system, and it is unclear whether say on pay will be included in that effort, Adamske said.

Despite say-on-pay's advance, some question just how meaningful the shareholder votes will be. The measure gives shareholders an up-or-down vote on executive compensation packages, and the results are nonbinding.

Companies subject to the mandate, mostly banks participating in the Troubled Assets Relief Program, expected the votes would be enforced beginning next year and were taken by surprise when the Securities and Exchange Commission in late February issued guidelines requiring votes at all firms filing their proxy statements after the signing of the stimulus package Feb. 17. Many had to scramble to comply even as the annual statements were headed to the printers, according to compensation lawyers and consultants.

Mark Borges, a principal at Compensia, a compensation consulting firm, said nearly 80 percent of the 211 TARP banks that have filed proxies are putting the vote on the ballot in the barest form required by law.

"They're pretty perfunctory. It's not real clear what you're asking people to vote on," he said. "Some say, 'we will take into consideration the outcome of the votes.' Some companies are completely silent, which kind of leads you to wonder if they're going to do anything at all."

But advocates say the votes have led to better corporate governance practices overseas.

"Once boards get used to this process, they realize that the way to avoid embarrassment at an annual meeting is to get early notice of concerns by simply talking to their major shareholders," said Stephen Davis, a fellow at the Yale University's center for corporate governance.

Some compensation experts worry shareholders may vote their emotions in this populist environment, rather than analyze hundreds of proxy statements in a matter of weeks. In addition, many investors may not have the wherewithal to determine what constitutes an appropriate compensation plan; despite SEC rules to increase disclosure in plain language, proxies can be peppered with dense techno-speak. Those investors, some say, may simply follow the recommendation of proxy advisory firms.

Four of 23 recommendations issued by proxy adviser RiskMetrics Group tell shareholders to vote against executive pay packages.

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