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US investors get to grips with managing say on pay

As shareholders grapple with how to vote on an increasing number of management say on pay (MSOP) proposals at US companies – and companies face increasing pressure to adopt the practice – various players in the industry are providing suggestions on how best to handle from both perspectives.

In 2008, only six companies voluntarily subjected their executive compensation to a shareholder vote. The number of MSOP votes increased significantly in 2009 to well over 200; although there was an increase in voluntary adopters (to about 20), the primary driver was a requirement for TARP recipients to subject their executive pay to an advisory vote. For 2010, we expect the number of TARP-related MSOP proposals to decline somewhat; however, we continue to see more companies voluntarily adopt the practice, with the number now around 55. This includes some ex-TARP participants, most notably Goldman Sachs Group Inc., JPMorgan Chase & Co and Bank of America Corp. Just over 100 MSOP proposals have been included on the ballot for proxy statements filed so far for calendar 2010.

This week, the Council of Institutional Investors issued a brief which details red flags it has developed to help its members “target companies where companies pay deserves careful scrutiny and where dialogue may be most urgent.” The top 10 red flag list is to serve as a guide to problematic pay practices.

Earlier in March, Cleary Gottlieb Steen & Hamilton LLP released a report for issuers that “summarizes some approaches that may be considered to solicit shareholder input on executive compensation,” including different approaches for MSOP as well as other options for consulting with shareholders. The report provides a good summary of the various alternatives taken by a number of companies.

Evaluating CEO Pay

In the last week both Business Week and The Wall Street Journal issued special executive compensation reports evaluating CEO pay as disclosed in proxy statements so far for 2010 – both finding that based on the early disclosure, overall CEO compensation continues to decline. Among other conclusions, Business Week reports that CEO compensation fell for the third year in a row; however, it notes that the cash portion of CEO compensation rose more than 8% – “a sign that companies are de-emphasizing long-term incentives.” It also reported that cash bonuses are up – potential reasons: some CEOs did not earn bonuses in the prior year and some compensation committees lowered performance targets.

The Wall Street Journal, which had similar findings, also noted an end to pay curbs. “Several companies recently thawed frozen salaries or canceled pay cuts.” The Journal also provides a tool to help decipher the compensation tables in the proxy statement and a breakout of compensation amounts for early reporting companies.

For more information about US proxy issues please contact Allie Monaco Head of Research at ProxyGovernance Inc, Manifest’s US partner.

Links

CII Pay Guidelines >>

Clearly Gottlieb  Report >>

Wall Street Journal – How to Read a Proxy >>

What do you think?