Responsible Investor

US Special: Investors rally on say-on-pay and sub-prime votes

Compensation concerns in focus as US meeting season looms.

The 2008 US annual meeting season will find investors focused primarily on three key issues: executive compensation reform, director elections, and risks to portfolio companies stemming from mortgage-backed securities and other high-risk investments following regulatory and economic developments that took place late in 2007.
Investor calls for advisory votes on pay – similar to resolutions now voted on each year at UK companies – and other measures to reform executive compensation will resonate in 2008 as US markets slide toward recession. A network of investors, led by Boston-based Walden Asset Management and the American Federation of State, County and Municipal Employees, has so far filed more than 90 proposals calling for an advisory vote on pay, compared with 44 such resolutions at this time last year: “Companies receiving the proposal include those where shareholders believe there has been non-performance, options backdating, and other major issues that shareowners need to address,” said Timothy Smith, senior vice president at Walden Asset Management. The proposal, dubbed “say on pay,” will also be filed at

companies such as General Electric that are viewed positively by shareholders with respect to executive compensation and other facets of governance, according to Smith: “We believe [such companies] should provide leadership in adopting an advisory vote.”
Three US companies: Par Pharmaceuticals, Verizon Communications, and Aflac, have so far taken steps to allow for advisory votes on pay following shareholder proposal filings in 2007 calling for the right. Aflac, the Georgia-based insurer, will be the first to give shareholders the vote when it holds its annual meeting on May 5. The company originally planned to allow for the vote in 2009. Reports of record Wall Street bonuses at financial firms that sustained considerable losses in 2007 as a result of exposures to mortgage-related investments are likely to stimulate broad support this year for proposals tied to executive pay. Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns together awarded roughly $39bn (€27bn) in year-end bonuses, exceeding the $36bn distributed in 2006 when the industry reported all-time high profits, according to recent press reports. CEOs at Morgan

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