The Inevitability of Say on Pay

Whatever happens with respect to corporate governance reform, the most likely piece to emerge is "say on pay."  Its included in HR 3269, the ‘‘Corporate and Financial Institution Compensation Fairness Act of 2009," which recently passed the House of Representatives.  It is also included in the Shareholder Bill of Rights, legislation introduced in the Senate by Senator Schumer.  Say on pay has likewise received support from the Administration. 

At the same time, shareholders are speaking on the issue.  Data provided by Walden Asset Management makes this very clear. In 2006, there were seven proposals, averaging 40.1% support.  The number increased to 51 in 2007, averaging 42.2%, with nine receiving a majority of the votes case.  In 2008, the number was up to 79, with the group averaging 41.4% and eleven receiving a majority. 

Matters, however, have exploded in 2009.  The number has now increased to over 100.  Of the 70 where votes have been taken, the support level has climbed to 46%.  Twenty have received at least a majority of the votes cast.  Here are the numbers: 

• 1. Apple – 51.6% (two years in a row)
  2. Hain Celestial – 62%
  3. KB Homes – 50.8%[1]  
  4. Edison International – 51%
  5. Lexmark International – 69.0% (two years in a row)
  6. Pfizer – 52.5%
  7. Honeywell – 54.4%
  8. Marathon Oil – 50.2%
  9. Valero Energy – 50%+ (company didn’t release; three years in a row)
  10. CVS Caremark – 61.6%
  11. Prudential – 61.5%
  12. Tupperware – 63%
  13. Dow Chemical – 51%
  14. Pulte Homes – 53.5%
  15. Jones Apparel – 63.4%
  16. YUM! Brands – 51.8%
  17. XTO Energy – 51.5%
  18. Supervalu – 52.7%
  19. ConocoPhillips – 50.2%[2]  
  20. Plum Creek Timber – 56.9%[3]  

Opposition still exists, particularly in the boardroom. But increasingly, it looks like say on pay will be the one reform likely to emerge as a result of the financial crisis.

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^[1] KB Homes states that “abstains” count as “against” votes, and therefore the proposal did not pass. However, out of the votes cast “for” and “against” the proposal, it received a majority.

^[2] In its 10-Q, ConocoPhillips states proposals require the affirmative “FOR” vote of a majority of those shares present in person or represented by proxy at the meeting and entitled to vote, and therefore the proposal did not pass. However, out of the votes cast “for” and “against” the proposal, it received a majority.

^[3] In its proxy, Plum Creek states that broker non-votes have the same effect as a vote against the proposal. However, out of the votes cast “for” and “against” the proposal, it received a majority.