December 8, 2008
Here Come the Hold-Through-Retirement Proposals!
– Broc Romanek, CompensationStandards.com
A topic that we have been writing about much recently is hold-through-retirement provisions. Not only does this type of provision provide a fairly easy fix to the “excessive compensation” concerns raised by Treasury (and Corp Fin Director John White) – as we have blogged about before – it’s something that major investors also have recognized as a key safeguard against irresponsible pay.
Recently, the AFL-CIO, Connecticut Retirement Plans and Trust Funds and AFSCME have submitted shareholder proposals to a number of companies (eg. Citigroup), urging them to extend the minimum period that senior executives must hold onto shares obtained through equity awards. These investors plan to file about 12 proposals that seek to address the risk alignment between executives and shareholders with a hold-through-retirement provision.
As an example of these, here is the proposal submitted to Dow Chemical last week that urges the company’s compensation committee to adopt a policy requiring that senior executives retain a significant percentage of shares acquired through equity compensation programs until two years following the termination of their employment. The proposal also recommends that the committee not adopt a retention requirement lower than 75 percent of net after-tax shares.
In their supporting statement, the investors note that requiring executives to retain their company stock for extended periods prompts them to focus on the company’s long-term performance: “In the context of the current financial crisis, we believe it is imperative that companies reshape their compensation policies and practices to discourage excessive risk-taking and promote long-term, sustainable value creation.”
In addition, the Laborers’ International Union of North America, International Brotherhood of Teamsters and United Brotherhood of Carpenters and Joiners have submitted shareholder proposals to 25 of the financial companies that sought TARP funds (originally, they planned to target 50 companies but ran into deadline issues). These proposals also contain a request for hold-through-retirement by seeking a “strong retention requirement that mandates that senior executives hold for the full term of their employment at least 75% of the shares obtained through the exercise of options or the award of restricted shares.” For an example of this shareholder proposal, see page 22 of this exclusion request from SunTrust Banks.