Executive Pay Remains in Shareholder Proponents'Sights

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By Che Odom

Feb. 4 — Executive compensation remains on the radar of shareholders, whose proposals addressing accelerated vesting and equity-based awards are expected to appear on proxy ballots this year.

Individual investors and large stockholders, including Trillium Asset Management and the AFL-CIO, together filed dozens of pay resolutions this fall.

Some survived “no-action” review by the Securities and Exchange Commission. At least one, a proposal at Sonic Inc. seeking to curb accelerated vesting of equity awards in the event of a change in control, was voted down Jan. 28 by shareholders.

Resolutions on these topics and clawbacks “are likely to be common in 2016,” Daniel J. Ryterband, chief executive officer of compensation consulting firm Frederic W. Cook & Co., told Bloomberg BNA Feb. 4.

Few to Be Approved

Companies likely will see proposals focused on single-trigger change-in-control stock vesting, clawbacks, mandatory stockholding and severance pay in the coming year, James D.C. Barrall, partner in the Los Angeles office of Latham & Watkins LLP and co-chair of its benefits and compensation practice, told Bloomberg BNA in an interview Feb. 4.

Relatively few will be approved by a majority of a company's stockholders, he said.

“Also, as more companies have already adopted some of the policies proposed by shareholder proponents and as proponents focus on other issues, we are likely to see relatively fewer compensation-related proposals,” he said.

Barrall added that the SEC's work on a Dodd-Frank Act requirement in which public companies would have to adopt mandatory “clawback” policies also may result in fewer clawback proposals .

Moreover, the number of compensation-related proposals have decreased since the advent of say-on-pay votes in 2011 , giving way to environmental, social and corporate governance resolutions, Barrall said.

Reining in Awards

Shareholders at financial advisory and asset management firm Lazard Ltd. may get to vote on a proposal submitted by the AFL-CIO, after the SEC's Division of Corporation Finance (Corp Fin) said in a Jan. 20 “no-action” letter that it didn't concur with the firm's basis for excluding the resolution from its proxy materials.

The resolution asks the board to adopt a policy prohibiting the vesting of equity-based awards for senior executives if they voluntarily resign to take a government job.

“We opposed compensation plans that provide windfalls to executives that are unrelated to their performance,” the union said in a statement supporting its resolution.

Lazard had argued in a Dec. 18 letter to the SEC that the resolution was too “inherently vague or indefinite” to implement. The company also said the resolution sought to “micromanage the company.”

Bonus Program on Ballot

ConocoPhillips Co. shareholders will be voting on a proposal calling for changes to the company's variable cash incentive program, after the company withdrew its request for no-action relief.

The resolution, submitted by the Unitarian Universalist Association, seeks a five-year delay in payment of any bonuses based on a metric from any measure of the company's reserves.

Also, the resolution asks that the human resources and compensation committee develop a methodology for determining what part of a bonus should be paid immediately and make other adjustments based on performance.

Attempts to reach ConocoPhillips for comment Feb. 4 were not immediately successful.

Compensation Committee Composition

Shareholders at Goldman Sachs Group won't be voting on a resolution submitted by an individual stockholder, Jing Zhao, that would have called on the board to include outside experts “from the general public” on its compensation committee. Corp Fin said in a Feb. 1 letter that the company may have a basis for excluding the proposal from its proxy materials because implementation of Zhao's proposal could cause the company to violate state law.

The division also concurred with reasons given by management at Baxter International Inc., Unitil Corp., Adobe Systems Inc. and Female Health Co. for omitting executive compensation items from their proxy materials.

Gender Pay Gap

Shareholders at Citigroup Inc. will probably get to vote on a proposal submitted by Trillium that calls on the company to prepare a report demonstrating that it doesn't have a gender pay gap.

While the measure doesn't deal exclusively with executive pay, Trillium said in its proposal letter that pay disparity often reflects a lack of women in senior positions.

In its Feb. 2 no-action letter, Corp Fin said it couldn't concur with Citigroup's contention that the resolution was “inherently vague or indefinite,” which would have allowed the company to exclude it under 1934 Securities Exchange Act Rule 14a-8(i)(3).

To contact the reporter on this story: Che Odom in Washington at codom@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com