THEORY & PRACTICE  |   MAY 18, 2009

A Quiet Response to 'Say on Pay' Measures

So Far This Season, Shareholders Are Supporting Compensation Packages, Most Board Nominees

By JOANN S. LUBLIN

Investor anger over executive pay and management missteps isn't showing up at the corporate ballot box. In the current proxy-voting season, management-compensation policies are winning large support and shareholders have ousted only a handful of corporate directors.

Shareholders this year won a long-sought voice on executive pay, when Congress required advisory "say-on-pay" votes at hundreds of companies that received federal bailout funds and others adopted the practice voluntarily. Still, no company has yet lost such a say-on-pay vote, which is merely a nonbinding yea or nay on executive pay packages. At 15 large companies canvassed by The Wall Street Journal, support ranged from 63.5% of votes cast at Motorola Inc. to nearly 98% at Goldman Sachs Group Inc.

About three-quarters of the way through proxy season, only seven directors up for election so far this year have failed to win a majority of votes, down from 32 in all of 2008, according to proxy advisers RiskMetrics Group Inc. Directors are faring better even though RiskMetrics has recommended clients oppose 20% of board members seeking reelection in 2009, up from 16% last year.

The results suggest that even activist investors, after long clamoring for a bigger role in setting executive pay and selecting directors, are wielding their new clout cautiously. They also reflect the reality that Congress's action, which came shortly before most corporate annual meetings, left little time to organize campaigns against pay plans. There are also subtle signs that investor activism, along with new and proposed federal rules, are changing compensation and governance practices at many companies.

"It's always a slow, evolutionary process before big stockholders broadly embrace a new idea like say on pay," says Patrick McGurn, special counsel for RiskMetrics.

Shareholders are almost certain to get more power in the coming months. Sen. Charles Schumer, a New York Democrat, plans to introduce a corporate governance bill Tuesday that will extend say on pay to all public companies. Similar legislation passed the House of Representatives in 2007. Also, the Securities and Exchange Commission is considering giving shareholders more authority to nominate directors.

Activists can claim some victories. Bank of America Corp. Chief Executive Kenneth Lewis relinquished his chairmanship last month after shareholders approved a resolution requiring the bank to separate its two top roles. But Mr. Lewis was re-elected to the board, along with the troubled bank's other directors.

Investor unease may be quietly altering pay and governance practices elsewhere. Consider Verizon Communications Inc., which agreed to hold a say on pay vote this year after shareholder complaints about compensation of CEO Ivan Seidenberg; investors in 2007 approved a nonbinding resolution calling for such a vote.

Verizon officials lobbied institutional investors to garner support for their pay practices before the May 7 annual meeting. They cited a drop in Mr. Seidenberg's pay last year. His total direct compensation fell to about $19 million, from $19.4 million the prior year.

Two weeks before the meeting, Verizon killed two management perks. The New York telecommunication company wrote shareholders to say it would stop covering executives' taxes on company-paid premiums for certain life insurance and ban CEOs, including Mr. Seidenberg, from making personal use of corporate aircraft after retirement.

Roughly 90% of votes cast endorsed Verizon's compensation practices.

It was a different story for Motorola. The struggling telecom-equipment maker's executive compensation practices were approved by less than two-thirds of the votes cast during its May 4 annual meeting. Sanjay Jha, hired as co-CEO last August, garnered the biggest 2008 pay package -- initially worth $104 million -- among the heads of 200 big U.S. companies studied by consultants Hay Group for The Wall Street Journal.

Motorola, based in Schaumburg, Ill., is one of 42 companies with a say-on-pay vote where RiskMetrics recommended investors oppose pay practices, citing some elements of Mr. Jha's package and "excessive perks" for others.

Daniel Pedrotty, head of the Office of Investment in Washington for the AFL-CIO, a big activist investor, says the large no vote shows "no confidence" in Motorola's executive pay packages.

Spokeswoman Tama McWhinney says Motorola "will continue to listen to all suggestions" about executive compensation.

Write to Joann S. Lublin at joann.lublin@wsj.com