Verizon Chief Executive Ivan Seidenberg has reason to
worry. Some of the same shareholder activists who targeted former
Pfizer chief Henry McKinnell and former Home Depot chief
Robert Nardelli for excessive pay last year now have the telecom boss at
the top of their hit list.
Messrs. McKinnell and Nardelli lost their jobs largely
as a result. Will Mr. Seidenberg go as well?
In today's tumultuous corporate environment, that's not
an easy question to answer. Nor is this one: Who runs the corporation? A
decade ago, most chief executives were firmly ensconced at the top of a
corporate hierarchy, and only the grossest misdeeds were likely to
dislodge them. Today, they seem susceptible to the judgments of a host
of outsiders.
Then there's this thorny question: What's a CEO worth?
Executive pay has emerged as the Achilles' heel of the corporate elite.
The scandals and turmoil of the past half-decade have taught corporate
chieftains that they need the goodwill of the public to survive and
thrive. But persuading Joe Six-Pack that a chief executive needs to make
$20 million a year for ho-hum performance is no easy task.
Which brings us back to Mr. Seidenberg. His total
compensation last year was $23,669,100. Included was $173,378 for
personal use of the corporate jet and $10,000 to pay a financial planner
to help keep track of all that money.
For investors, that pay was for mixed performance.
Anyone who bought the stock when Mr. Seidenberg became sole CEO in April
2002 has lost money. Anyone who bought it at the start of 2006 earned a
34% return last year -- well above the average for S&P 500 companies,
but below others in the telecommunications industry. By contrast, AT&T
provided a 52% return to shareholders last year -- and Chief Executive
Edward Whitacre took in $36 million in pay.
Mr. Seidenberg's critics tend to focus on the lousy
five-year track record. "Verizon this year is the poster child
for pay for failure," says AFL-CIO Secretary-Treasurer Richard Trumka.
The AFL-CIO is trying to convince shareholders to withhold votes for six
directors at Verizon's annual meeting on May 3. That's threatening
because the company last year bowed to another shareholder demand and
adopted a rule requiring directors to win a majority of votes cast.
Before that, directors could be elected with a simple plurality.
The unions have considerable clout in these elections.
They not only control their own pension funds, but have outsize
influence with the large public-employee pension funds. And even without
majority support, they can have a big impact. Last year, only a third of
shareholders withheld votes from targeted Home Depot directors, and only
a quarter withheld votes from targeted Pfizer directors. But those "no"
votes were large enough to send a message the boards subsequently
heeded.
Dan Pedrotty, who runs the AFL-CIO's Office of
Investment, says another big issue is the fact that Verizon "took
conflicted advice from a compensation consultant who was doing an
enormous amount of business with the company itself." The Verizon board
dumped that consultant, Hewitt Associates, last year, after an article
in the New York Times highlighted the conflict.
But the union has its own conflicts. Mr. Pedrotty
argues the campaign against Mr. Seidenberg is about getting better
returns for pensioners. But the Communications Workers of America also
slated a rally in Pittsburgh for May 3 -- the same day as the Verizon
annual meeting there -- which it says will "set the stage for 2008
Verizon bargaining."
Mr. Seidenberg declined comment. His defenders argue he
is a transitional CEO, who has had to make costly investments in
fiber-optic lines and other technology that hurt earnings in the short
term to enable it to win in the long run.
Moreover, two proxy advisory services have come out at
least partly defending Mr. Seidenberg in the battle. Institutional
Shareholder Services has recommended to most of its clients that they
oppose the effort to dump Verizon directors. And Glass Lewis has
recommending withholding votes from just two, not all six directors.
So will he survive? At the end of the day, that's a
decision shareholders have to make. After all, it's their money paying
his salary. The battle will give them a chance to express their views,
albeit in a very messy and indirect way.
Verizon shareholders will also have a chance next month
to vote on a proposal to give shareholders an advisory vote each year on
executive pay - an idea that's already in place in Britain, and that was
backed recently by the House of Representatives.
You have to wonder: Wouldn't that be a simpler way to
get shareholders involved?
Alan Murray welcomes reader questions and will
respond at
WSJ.com/TalkingBusiness3.
Write to Alan Murray at
Alan.Murray@wsj.com4
![[go to forum]](it_forum12132006161118.gif){kind=small}