Shareholder Activism May Require Changes in Pay Areas

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By Yin Wilczek

May 4 — With shareholder activism on the rise, companies may want to reconsider how they approach executive compensation, an attorney said May 1.

It is estimated that as many as one in five Fortune 500 companies is subject to shareholder activism, said Laurent Badoux, chair of Greenberg Traurig LLP's Phoenix labor & employment practice. Given the interplay of the various factions that are vocal with respect to executive compensation, Badoux outlined the top 10 areas in which he suggested companies reassess their practices and—depending on their exposure—proactively adopt changes.

Those areas include clawbacks, stock ownership, pay ratio disclosure and director fees, among others.

Badoux spoke at the American Bar Association's Section of International Law's spring meeting in Washington.


The Dodd-Frank Wall Street Reform and Consumer Protection Act directed the Securities and Exchange Commission to implement several changes with respect to executive compensation. Most recently, a divided SEC proposed a rule that would require companies to disclose executive compensation as compared to corporate performance. 

The SEC has yet to propose a rule—mandated by Dodd-Frank § 954—that would require issuers following an accounting restatement to recover compensation improperly paid to current or former executive officers.

Keith Higgins, director of the SEC's Division of Corporation Finance, has suggested that companies adopt new pay policies without waiting for commission rulemaking on the Dodd-Frank matters.

Badoux said that in light of § 954, companies should proactively consider instituting a clawback policy that would be compliant with the provision.

In the area of stock ownership, Badoux noted that shareholders, to ensure corporate leadership goals are aligned with those of shareholders, increasingly are pressuring executives and directors to have substantial ownership in their companies. He suggested that companies consider adopting a policy on stock ownership for executives and directors, including minimum ownership requirements.

Director Fees in Crosshairs

In the meantime, there are different views on director fees, Badoux said. He observed that there is a trend in which directors are paid more in annual fees than in participation fees. He urged companies to consider what is the right balance for their board culture. In addition, they should ensure that they define who qualifies for such fees, he said.

Badoux also noted that perks increasingly are viewed with disfavor by activists, especially since the average compensation of chief executive officers keeps rising. He recommended that companies keep perks to a minimum or remove them altogether from pay packages so as to avoid criticism from shareholder advocacy groups.

Moreover, activists are challenging the use of stock options as the primary vehicle for providing equity to executives, Badoux continued. Although stock options remain a staple, restricted stock awards are gaining ground as an alternate equity compensation method, he said.

Meanwhile, activists have challenged change of control provisions in executive agreements that do not set limits on the payments to executives, Badoux said. Unless companies are positioning themselves for an acquisition, they should review the language of their change of control provisions to avoid activist scrutiny and unintended costs, he said.

Finally, Badoux said that activists strongly support Dodd-Frank's requirement for pay ratios to gauge whether executives are overpaid in relation to their employees. The SEC proposed a rule in September and Chair Mary Jo White has suggested that the requirement soon will be finalized.

To contact the reporter on this story: Yin Wilczek in Washington at

To contact the editor responsible for this story: Ryan Tuck at