Executive Pay
Next Skirmish Is at UnitedHealth
By SCOTT THURM
May 26, 2007; Page A2
Executive compensation will be back in the spotlight
Tuesday at the annual meeting of UnitedHealth Group Inc.
Shareholders will consider proposals to tie executive
pay more closely to corporate performance, to curb special retirement
benefits and to give themselves an annual advisory vote on executive pay
deals. The health insurer is in investors' sights after acknowledging
that it backdated stock options to enrich executives, prompting last
year's resignation of Chief Executive William McGuire.
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Similar shareholder measures failed to win majority
support Thursday at Home Depot Inc., which has also faced
questions about compensation. A "say on pay" resolution for an annual
advisory vote was backed by 43% of shares voted. That's also the average
level of support for similar measures at 21 companies that have
announced results this year, according to Institutional Shareholder
Services. The measures have won majority support so far at just two
companies -- Verizon Communications Inc. and Blockbuster
Inc.
Defenders of the status quo might be encouraged by
those results. In electoral politics, 43% is a resounding defeat. But
corporate politics isn't played by the same rules.
First off, 43% is considered a strong showing for a new
corporate-governance proposal. The advisory-vote idea -- modeled on
requirements in countries such as Britain and Australia -- first
surfaced at U.S. annual meetings last year. Roughly 40% of the shares
voted at seven companies last year supported the concept. This year,
both the number of companies confronting the issue, and the level of
support, are up.
That makes the say-on-pay movement resemble another
governance trend -- requiring unopposed directors to win a majority of
votes cast to be elected, rather than a plurality. Just three years
after it first surfaced, majority voting is now the rule at roughly 60%
of the companies in the Standard & Poor's 500-stock index, according to
Claudia Allen, of Neal, Gerber & Eisenberg LLP.
Here's another reason 43% may understate the demand for
change: ISS's Patrick McGurn says several of his clients --
institutional investors such as pension funds and mutual funds -- have
told him that they consider the resolutions too weak. They prefer to
pressure directors directly by withholding votes for their re-election.
That tactic contributed to the departures of former Home Depot CEO
Robert Nardelli and Pfizer Inc. CEO Henry McKinnell.
Finally, consider the action in a more important arena
-- Congress. A bill that would require annual advisory shareholder votes
on executive compensation passed the House last month, by a veto-proof
269-134 margin.
Senate approval is hardly certain. The White House
threatens a veto. And business groups oppose the measure. Thomas Lehner,
policy director for the Business Roundtable, says the law would paint
all companies with a single brush, requiring an advisory vote "even
where pay has never been an issue." As a practical matter, he says, it
would be hard for directors to interpret an up-or-down "no" vote on a
compensation plan and make changes.
But supporters view the 55 House Republican votes in
favor of the measure as an indication of the political winds. Home
Depot's new CEO, Frank Blake, put it this way for his shareholders on
Thursday: "We're seeing a kind of societal shift around what
shareholders are willing to pay their CEOs," he said.
Write to Scott Thurm at
scott.thurm@wsj.com5
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