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How Shareholders are Battling Excessive Executive Compensation

Dale Wannen
Dale Wannen | Thursday June 30th, 2011 | 4 Comments

In case you didn’t get the memo, excessive executive compensation was supposed to become a thing of the past after their actions played a major role in the recent financial meltdown.  For the past year, shareholders have been able to fight for change due to the recently implemented Dodd-Frank bill. Dodd-Frank is the most sweeping financial reform the US has seen since the great depression and includes a number of sweeping changes, including the right for shareholders to weigh in on executive compensation and corporate affairs with a non-binding vote.   Allowing owners of publicly traded companies to vote on such an important matter would seem to shift things in a positive direction.  Right?  Wrong.

Surprisingly, shareholders voted to reject executives’ (excessive) paychecks at less than 2% of almost 2000 publicly traded companies.  This is a dismal number considering the current median pay of CEOs sits at $8.4 million, a 35% increase from 2009.  In a recent Bloomberg Businessweek report Investor Say on Pay is a Bust, there are two strong parties advocating head to head, for and against this legislation.

Institutional Shareholder Services (ISS) is playing the role of advocating for change.  They have recommended shareholder actions at companies that have failed to address such concerns.  They include  Jeffrey Kindler, ex-CEO of Pfizer who took home a $34 million paycheck and JP Morgan chief Jamie Dimon after he was compensated $20 million in 2009.

Founder of ISS, Robert Monks, states that “Say on Pay is at best a diversion and at worst a deception.”

On the other side of this battle is the Center on Executive Compensation.  Over 300 of the largest companies back this Washington-based lobbyist group to keep citizen advocacy groups at bay.  In fact, this lobbyist group is in the midst of trying to stop a resolution that would require companies to report their workers’ median income and compare it to the CEO of that firm.  Clearly, the transparency of this makes executives shake at the knees.

New Jersey Senator Robert Menendez who added this disclosure requirement into the Dodd-Frank bill stated, “The real reason House Republicans want to keep the typical worker’s pay secret is that it may embarrass some companies to reveal that they pay their CEO in the range of 400 times what they pay their typical worker.”

So how can you change this to engage a company to listen?

By owning shares of stock you have the right to vote.  Upon receiving those boring proxy statements in the mail, be sure to open up to the ballot and spend 5 minutes looking at the four to five resolutions, check the box you deem correct, and mail it back.  It’s that simple.  And if you still feel uncomfortable doing this, companies such as MoxyVote have stepped in to make matters easier, by aligning your voting beliefs with others in the public.

Overall, movement forward is a step in the right direction. “Anything that creates more engagement between management and shareholders is good for corporate governance,” stated executive director of ISS, Patrick McGurn.  Matters of how the biggest corporations of this world are handling their day to day activities around ESG issues are being voted on a daily basis.  Acting as a responsible shareholder by applying a pencil to a proxy allows positive changes to become possible.


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  • Dan Walter

    This statement is the absolute opposite of correct. “Out of almost 2,000 companies that voted on the issue of executive compensation, only 32 of them actually received the necessary votes to move forward with addressing their CEO’s compensation. ”

    only 32 companies received NEGATIVE votes. All others received votes supporting pay practices.

    • Nick Aster

      Not sure I understand? I think he meant the “necessary, negative” votes… no?

    • Jen Boynton

      Thanks guys. We edited the post for clarity. The few shareholders voted in favor of addressing the excessive pay, so Dan is correct that the majority voted to maintain the status quo.

  • http://www.facebook.com/people/James-McRitchie/714026048 James McRitchie

    One of the reasons only 2% were voted down is that most retail shareowners don’t vote their proxies. Another reason is that if you do vote your proxies, but you leave items like “say on pay” blank, the online voting system ProxyVote.com changes your blank votes to votes in favor of management. (see Support Petition to Keep Blank Votes Blank at http://www.corpgov.net/news/news.html#BlankVotes)

    Figuring out how to vote on pay issues could take hours. The United States Proxy Exchange, a retail shareowner advocacy group, has a set of draft guidelines that can help average shareowners make this decision in just a few minutes. See http://proxyexchange.org/2011/05/request-for-comments-say-on-pay/.

    I like your idea of also checking MoxyVote.com. Don’t forget ProxyDemocracy.org. In my experience, they are more likely to have voting recommendations on all ballot items, not just issues central to various social issues.