Financial Times, February 8, 2007 article

US companies, including Pfizer, the drugmaker, and American International Group, the insurer, are seeking to avoid shareholder revolts by meeting leading investors to discuss holding UK-style votes on executive pay.

The move underlines the growing influence of US pension funds on corporate governance, following the outcry over executive pay at companies such as Pfizer and Home Depot, the retailer.

It also reflects some companies’ desire to avoid public stand-offs with investors, which have become more frequent since recent governance scandals.

The talks, which follow a campaign by US and international pension funds to demand a greater say on executive pay, could pave the way for regulatory changes to introduce a non-binding annual shareholder vote.

AIG, Pfizer and rival Schering-Plough confirmed they and other companies had agreed to talks in a “working group” with pension funds including the $220bn California Public Employees’ Retirement System and the American Federation of State, County and Municipal Employees, the biggest public workers’ union.

AIG, Pfizer and Schering-Plough were among 44 companies targeted by an investor coalition that last month filed motions demanding a UK-style vote on pay – a move that turned executive pay into a battleground for the coming season of shareholder meetings.

However, it is understood the motion against Pfizer has been withdrawn.

“We do not follow the model that is ‘them’ and ‘us’,” said Peggy Foran, Pfizer’s corporate secretary. “We think that having shareholders discuss this or hearing feedback has a lot of merit.”

The working group, which will hear from academic and corporate governance experts, is expected to meet for the first time on Friday. Other companies believed to be part of the discussions include the consumer group Colgate-Palmolive, the drugmaker Bristol Myers-Squibb and the conglomerate Tyco. They either declined to comment or were unavailable.

People close to the talks said that all participants agreed that the proposal of a non-binding vote on compensation, which has been in force in the UK since 2003, had merit but needed to be adapted to the US legal and regulatory framework.

The presence of pharmaceutical groups in the working group reflects their efforts to improve their public image. This has been a priority of Jeffrey Kindler, Pfizer’s new chief executive, who replaced Hank McKinnell last year.

Mr McKinnell’s $200m severance package has been criticised by corporate governance experts particularly in light of the company’s share performance.

However, Mr Kindler’s compensation package as new chief executive reflects Pfizer’s efforts to improve performance and image by tying pay more closely to shareholder returns.