Investors target executive salaries
More investors are getting serious about deflating corporate chiefs' ballooning pay.
Lawmakers handed them a sharp implement two years ago — a law that required publicly traded companies to hold so-called “say-on-pay” votes at annual shareholder meetings starting in 2011.
The votes are nonbinding, but experts say they're having a profound effect in corporate boardrooms. They're stirring greater shareholder activism and goading companies to retool pay packages. Some firms that lost votes have cut corporate chiefs' pay or even jettisoned executives.
“It is a day-and-night” difference, said Patrick McGurn, special counsel for Institutional Shareholder Services, an influential consulting firm that advises pension funds and other big investors on say-on-pay votes and other issues at shareholder meetings.
“(Corporate) directors are engaging with investors like they never did before,” McGurn said.
There are signs, experts say, that many firms' boards of directors are working harder to make sure top executives' compensation is closely tied to company profits and stock returns — known as “pay for performance.”
“As you put more pay for performance in the system, it will result in more variability” because pay is tied to how each company does that year, said Joe Mallin, managing director in Atlanta for executive compensation consultant Pearl Meyer & Partners. “That's what everyone wants.”
Until the past few years, however, that's generally not what happened, according to critics.
CEO pay had been soaring for decades at most firms. That's partly because they have lots of levers to pull to justify big raises, critics said.
But after the near-meltdown on Wall Street in 2008 and several corporate scandals, Congress enacted the Dodd-Frank financial reform act, which requires companies to allow shareholders to approve or disapprove top executives' pay packages at least every three years. Most companies hold annual votes.
The votes are nonbinding, but companies do have to report the vote results and later explain what they did about it.
Only 34 firms failed in 2011 and 60 failed last year. So far this year, only about 10 percent of the nation's thousands of public companies have held votes, and more than 90 percent of those have passed.
“I think the thing that people don't appreciate yet is that it has totally changed the dialogue between shareholders and management,” said Randall Thomas, a Vanderbilt law school professor who co-authored a study of the say-on-pay rule. “It will have an impact on companies whose pay practices deviate significantly from the norm.”
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Google rejects European Union antitrust charges over search results
- Regulators expect lawsuit over oil, gas rules process
- Clean Air Council challenges Sunoco Pipeline’s public utility status
- Board ruling boosts efforts for fast-food collective bargaining
- Stocks, oil prices regain ground after steep 6-day sell-off
- GNC chief Archbold touts tailored mail promotions
- Roundup: Kraft Heinz recalls more than 2M pounds of turkey bacon; 2 key Mylan shareholders won’t participate in Perrigo vote; more
- Market strategists predict churning, but no major slump
- Busy Beaver Home Improvement Centers join True Value co-op
- Alleged keyless ignition danger triggers lawsuit by consumers
- A handful of tech startups plan big changes to the auto industry