How Shareholders are Battling Excessive Executive Compensation

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.

Dale Wannen

Dale Wannen is President of Sustainvest Asset Management, an investment advisory firm focused on sustainable and responsible investing (SRI). Prior to Sustainvest, Dale was a portfolio manager at Harrington Investments and specialized in ESG investment strategies, securities analysis, and shareholder advocacy. Prior to this position, Dale was a financial advisor with UBS Wealth Management Services in San Francisco. He is often a guest speaker on the topic of ESG investing and shareholder advocacy.Dale has an MBA in Sustainable Management from Presidio Graduate School in San Francisco. He earned a B.A. in Economics from Rowan University and currently is a volunteer with Mentor Me Petaluma, Rebuilding Together Petaluma, and the founder of Green Drinks Petaluma.He also currently sits as Board of Director and Treasurer of San Francisco human rights organization, Global Exchange, teaches Economics for the Oakland non-profit Game Theory Academy and is a committee member for the National Resources Defense Council (NRDC) in San Francisco. Previous volunteer work has included Treasurer and Board Member for bird conservation organization, San Francisco Bay Bird Observatory (SFBBO), committee member of the Petaluma Pedestrian and Bicycle Advisory Committee (PBAC), and President of the Social Venture Finance Club at Presidio Graduate School.Dale currently holds the Series 65 FINRA license and has previously held the Series 6, 7, 63, 66 and California Life and Health Insurance Certification. He is a member of National Association of Professional Financial Advisors (NAPFA) and the Financial Planning Association (FPA).Dale lives in Petaluma, CA with his wife Lauri and their Malamute Shadow.