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Shareholder vote causes ATI to review executive pay packages

| Friday, May 22, 2015, 11:52 p.m.
The roof of the new ATI-Allegheny Ludlum steel mill is rapidly being completed at the Harrison facility. The $1.1 billion steel mill is expected to be completed in 2014.
Eric Felack | Trib Total Media
The roof of the new ATI-Allegheny Ludlum steel mill is rapidly being completed at the Harrison facility. The $1.1 billion steel mill is expected to be completed in 2014.

Allegheny Technologies Inc. is planning changes to the way it pays its top executives, a result of nearly half of the Downtown-based company's shareholders voting against compensation packages earlier this month.

The non-binding vote passed by the slimmest of margins and highlighted unhappiness among stockholders who didn't think CEO Richard Harshman should have gotten a 70 percent raise in light of the company's poor financial performance.

Harshman was paid a total of $8 million last year, up from $4.7 million in 2013. His total compensation was driven up by a bigger base salary, more stock awards, the return of a $1.4 million bonus which he hadn't earned in 2013, and a pension that was valued higher.

It was a rare pushback by shareholders against a company's executive pay since the Dodd-Frank financial reform law mandated advisory votes on compensation packages, said Gary Hewitt, director of corporate governance research at Sustainalytics, a New York consulting company. The law, which took effect in 2011, requires shareholders to have a say-on-pay at least every three years.

“Failure rates are in the 3 to 4 percent range every year,” Hewitt said. “Ninety-five percent (of companies) get more than 95 percent support.”

At Allegheny Technologies' May 1 shareholder meeting in Boston, the so-called say-on-pay resolution barely passed, squeaking by with 42.29 million shareholders voting in favor and 42.27 million opposed.

Allegheny Technologies spokesman Dan Greenfield said the company took notice and has been talking to its largest shareholders to find out what they want changed.

“We've had conversations with our shareholders, and we're confident that we understand the issues,” he said. “We're going to address those issues over the next couple of months.”

Greenfield declined to specify the changes.

Harshman's bonus appeared particularly concerning, Hewitt said, given the company reported a net loss last year and its revenue and profits have fallen steadily over the last several years. The company lost $2.5 million last year, compared with net income of $154 million in 2013.

ATI paid no bonus in 2013 as results faltered, but then changed the way it decides if executives have earned bonuses for 2014, Hewitt said. Last year, when there were no bonuses, 98 percent of the shareholder votes approved the compensation plans for executives.

“The bonus paid well above target despite the poor performance,” he said. “That feels like a disconnect. They changed what they were rewarding, and it ended up rewarding something that doesn't reflect the performance of the business.”

The company switched from judging performance based largely on financial targets to looking at whether executives completed several strategic goals, such as opening a new plant, Hewitt said.

He added: “If you miss your target, don't go drawing a circle around a new target.”

Institutional Shareholder Services, a research firm that issues recommendations on company proxy votes, said Allegheny Technologies' stockholders should vote against the compensation.

“Despite long-term company underperformance, with negative shareholder returns on a one-, three-, and five-year basis, the company's annual cash program paid out above target,” ISS said in a report to investors.

Tony Slomkoski, a shareholder and former employee, said he voted against the compensation because his share of the cost of company-provided retiree health coverage continues to rise. Yet, the 71-year-old from Sarver said, executive pay keeps going up.

“If the company's doing well, then by all means, they deserve it,” he said. “But if they're not going to properly compensate the workers or the retirees, I don't think it's right at all.”

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com.

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