Pressed by Activists, Companies Tying Pay to Performance

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By Che Odom

March 24 — Shareholder pressure on companies over director and officer compensation is spurring change in holding policies and stock ownership thresholds for board members and management, a compensation consultant said March 24.

“The increase in shareholder activism has actually started to influence the way in which companies think about ownership policies,” Seamus O’Toole, a managing director of Semler Brossy Consulting Group, said at a webinar sponsored by compensation consultant Equilar Inc.

Ownership guidelines and holding policies are the two main methods companies use to ensure that compensation for directors and officers corollate to long-term performance.

O'Toole observed that activists generally are more focused on absolute levels of ownership, as opposed to the particular policy or the guideline. “But the policy or the guideline is a way to ensure that your executive team does have adequate ownerships” and at the same time signal to shareholders that the company is heeding their concerns, he said.

As executive pay packages continue to climb, the topic has become a focal point of many high-profile proxy contests and activist campaigns. Earlier this week at the Council of Institutional Investors' spring conference in Washington, large-investor representatives vowed to continue pressing companies to factor long-term performance into the compensation of their officers and directors.

“We should be looking at, ‘Are we paying for performance?' ” said Paul Lee, head of corporate governance at Aberdeen Asset Management, at the CII event. “Are we encouraging a policy that encourages long-term success?”

Compensation packages that are not weighed in favor of long-term achievements and grant executives exorbitant pay should be looked at with skepticism, and shareholders must communicate concerns to management, Lee said.

When such concerns exists, “there is insight there on quality of the board” and its independence and effectiveness, he said.

Shareholder Proposals

Activists are using shareholder proposals as one way to show their disfavor with soaring pay at corporate America.

Over the last two weeks, the Securities and Exchange Commission staff has rejected requests for so-called “no action” relief by several companies that wanted assurances from the agency that they could omit compensation-related shareholder resolutions from their proxy materials.

Among other actions, the SEC's Division of Corporation Finance March 16 said it couldn't concur with CVS Health Corp. and TJX Companies' contentions that they could exclude proposals that called for the companies' compensation committees to review and report on their executive compensation policies to stockholders. Inc. also attempted in vain to gain no-action relief from the SEC staff. The New York State Common Retirement Fund and the AFL-CIO submitted a resolution to ask's board to adopt a policy regarding the acceleration of vesting of equity awards.

Perrigo and Wal-Mart

On March 14, the SEC didn't agree with Perrigo Co. that investor Dennis Breuel's proposal relating to stock options would, if implemented, cause the company to perform an unlawful act.

Meanwhile, Wal-Mart Stores Inc. shareholders will probably be voting on a proposal submitted by Amalgamated Bank after its resolution also survived no-action review March 11.

Amalgamated Bank's proposal asks that Wal-Mart's board adopt a policy not to use earnings per share or its variations or financial return ratios in determining a senior executive’s incentive compensation or eligibility for such compensation, unless the board uses the number of outstanding shares on the beginning date of the performance period and excludes the effect of stock buybacks that may have occurred between that date and the end of the performance period.

In resolutions that have come to a vote, stockholders at Whole Foods Market Inc. rejected a proposal March 9 that would have limited accelerated vesting, with about a quarter of shareholders voting in favor. Next month, stockholders at Coca-Cola Co. and U.S. Bancorp. will be considering other types of compensation-related shareholder proposals.

To contact the reporter on this story: Che Odom in Washington at

To contact the editor responsible for this story: Yin Wilczek at

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