Financial Times, March 7, 2007 article

US regulators have forced AT&T to ask shareholders whether they want a non-binding vote on executive pay in a move that will bolster investors' efforts to have a greater say on the compensation of America's corporate leaders.

The decision by the Securities and Exchange Commission, contained in a letter seen by the Financial Times, is a major blow to AT&T, which has been one of corporate America's staunchest opponents of an unprecedented campaign by investors and lawmakers to introduce a UK-style, yearly vote on executives' pay.

The issue will feature prominently in this season of shareholder meetings following investor outrage at the huge severance packages awarded to executives at companies such as Home Depot, the retailer, and Pfizer, the drugmaker.

State and union pension funds have filed motions at more than 60 companies demanding a non-binding vote on compensation amid concerns that executive pay has not been adequately linked to companies' performances. The SEC adjudicates when a company objects to such a motion.

AT&T confirmed yesterday that the SEC had rejected its request to exclude the motion on executive pay from the "proxy" form containing matters to be voted on at its annual investor meeting on April 27.

In its submission to regulators, the telecommunications group had maintained that the proposal by the Ameritech/SBC Retirees group breached SEC rules because it "merely purports to express shareholders' views" rather than requiring action from the board.

The months-long tussle between AT&T and its shareholders has become famous in corporate governance circles because the telecoms group supported its argument by quoting what some considered to be an irrelevant decision regarding a shareholder's demand to include his poems in a company's proxy.

AT&T said that a yearly vote on compensation conflicted with the legal power of directors and the board to manage the company.

However, in its letter - sent to the company last month - the office of the SEC's chief counsel said it was "unable to concur" with AT&T's views. It also rejected AT&T's contention that the proposal breached state law in Delaware, where the company is incorporated.

If the proposal is passed, shareholders could be able to vote on the compensation of AT&T's executives, led by chairman and chief executive Edward E. Whitacre, from as early as next year. In 2005, Mr Whitacre earned $17.3m, a 25 per cent rise on the previous year.