U.S. union group calls for corporate pay reforms

Tue Jan 27, 2009 11:47am EST

By Martha Graybow

NEW YORK, Jan 27 (Reuters) - An activist U.S. pension fund on Tuesday demanded changes in how Corporate America rewards its leaders, including a call for companies to stop paying bonuses based on short-term results that may turn out to be unsustainable.

Executive pay is expected to be a hot topic at corporate annual meetings this year amid public anger over the economic downturn, widespread employee layoffs and the government's $700 billion bailout.

Most companies hold their annual gatherings in the spring, when shareholders have an opportunity to vote on ballot initiatives that deal with how corporations are run.

The American Federation of State, County and Municipal Employees (AFSCME) Employees Pension Plan said it had submitted 36 stockholder proposals for consideration at companies including American International Group Inc (AIG.N), Citigroup Inc (C.N) and Walt Disney Co (DIS.N) this year. Many of its proposals focus on pay issues.

"The failure of boards to properly assess risk, coupled with an emphasis on short-term results that produced sky-high pay for executives has left us in the worst financial mess since the Great Depression," said AFSCME President Gerald McEntee. "These proposals will encourage corporate executives to avoid the type of short-term decision making that has wreaked havoc upon our financial markets."

The AFSCME pension plan manages about $850 million in assets for its union retirees around the United States.

Among its new proposals this year is one calling for the majority of bonuses for top corporate executives to be held in escrow for three years rather than paid out immediately, a measure it says is aimed at discouraging short-term risk-taking by company chiefs to meet their annual bonus targets.

The idea grew out of the executive pay rules that the U.S. government has imposed on companies accepting federal bailout money, said AFSCME Director of Corporate Governance and Pension Investment Richard Ferlauto.

The proposal, submitted to Charles Schwab Corp (SCHW.O), E*Trade Financial Corp (ETFC.O) and JPMorgan Chase & Co (JPM.N) for shareholder votes, calls for executive bonuses to be distributed in installments, with one-third of the total to be paid annually as long as performance objectives are reached, AFSCME said.

AFSCME also has submitted a proposal requiring executives to retain a large portion of company stock they are awarded for at least two years after they stop working for the company.

The proposal was filed at companies including AIG, Bank of America Corp (BAC.N) and Dow Chemical Co (DOW.N), AFSCME said.

AFSCME also said it had resubmitted proposals calling for nonbinding annual shareholder votes on executive pay -- known as "say-on-pay" votes -- at companies including Apple Inc (AAPL.O), Bank of New York Mellon Corp (BK.N) and Citigroup.

The group is also targeting payments awarded to company chiefs after their deaths -- benefits dubbed "golden coffins."

It said it has submitted proposals to end these payouts, unless the companies agree to extend the death benefits to other managers at Abercrombie & Fitch Co (ANF.N), General Dynamics Corp (GD.N), Safeway Inc (SWY.N) and Disney.

It is not certain that all of the measures will appear on shareholder ballots. Companies and shareholder groups sometimes reach compromises, and the measures are withdrawn.

Occidental Petroleum Corp (OXY.N) said on Monday its board had adopted a say-on-pay policy on executive pay, starting in 2010. AFSCME and other shareholders subsequently withdrew their proposals calling for such annual votes.

(Reporting by Martha Graybow; editing by Jeffrey Benkoe)

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