Say-on-Pay Dominates New Proxy Season

The 2010 annual meeting season is shaping up to be an active one for shareholder proxy measures, particularly those dealing with executive compensation issues. But if Congress and the Securities and Exchange Commission act on pending measures that make it easier for competing candidates to run for director and give shareholders more say over compensation, this year could end up looking like the calm before the storm.

"I doubt that Congress or the SEC would change the rules in the middle of this meeting year," says Patrick McGurn, general counsel at RiskMetrics Group, which monitors shareholder actions. "But both reforms look to be on track for 2011."

Meanwhile, McGurn predicts that there will be some "eye-popping disclosures" of executive bonuses issued last year, and says these will fuel more push-back measures on compensation by shareholders this year and next.

So far, RiskMetrics has tallied 29 proxy proposals that would give shareholders an advisory vote on compensation, three measures to establish anti-gross-up policies, nine requiring compensation committee independence and seven that would establish a retention period before the awarding of any executive stock bonuses. RiskMetrics also reports that 25 pending measures require independent board chairs and 27 to establish the right to call a special shareholders' meeting.

The big changes in the proxy landscape from last year, says McGurn, are measures to allow the calling of special meetings and to require more diversity on boards of directors (currently 11 proposals). New this year are proxy measures that would bar CEOs from sitting on compensation committees.

"So-called 'say-on-pay' measures are passing pretty frequently," says Stephen Bainbridge, a law professor at the University of California at Los Angeles who researches shareholder activism. One reason, he says, is that large institutional investors, including labor union and public employee pension funds, are taking a more activist stance on governance issues.

Bainbridge predicts that as early as next year, these groups could begin focusing on another area: demanding shareholder say over corporate political contributions. In January, the U.S. Supreme Court overturned 60 years of precedent and restrictions imposed by the McCain-Feingold campaign finance law, and declared that corporations (and labor unions) have a First Amendment right to spend unlimited amounts of money on political campaigns.

"I suspect that many of the large institutional investors could start demanding that they have a say over how that money is spent," says Bainbridge, adding that such measures are not likely to show up until next year.


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