March 26, 2009
Different Approaches to Say-on-Pay: Narrow Retrospective Model
– Colin Diamond, White & Case
With say-on-pay being implemented by many more companies this proxy season – courtesy of TARP – and shareholders supporting these proposals in greater numbers (eg. Hain Celestial Group’s proposal recently received a 62% vote), I thought it would be useful to explore the different approaches to say-on-pay that companies can take in a series of blogs.
Narrow Retrospective Model – The Blockbuster Model
In 2007, shareholders of Blockbuster succeeded in having the following resolution included in its annual proxy statement:
“Resolved, that shareholders of Blockbuster, Inc. urge the Board of Directors to adopt a policy that Blockbuster shareholders be given the opportunity at each annual meeting of shareholders to vote on an advisory resolution, to be proposed by Blockbuster’s management, to ratify the compensation of the named executive officers set forth in the proxy statement’s Summary Compensation Table (SCT) and the accompanying narrative disclosure of material factors provided to understand the SCT (but not the Compensation Discussion and Analysis).”
The resolution was supported by 57.8% of shareholders who voted and led Blockbuster to adopt a say-on-pay policy starting with the company’s 2009 annual meeting. Before the deluge of TARP companies, shareholders at least 14 US companies passed say-on-pay resolutions similar to Blockbusters’ and seven public companies have either officially adopted say-on-pay policies or committed to so. Among those that have adopted policies are Apple, Tech Data, Par Pharmaceutical and Verizon. None of these companies have yet submitted executive compensation to a shareholder vote. Nevertheless, the Blockbuster resolution indicates how a say-on-pay vote might be implemented.
The resolution seeks shareholder approval of only the Summary Compensation Table and the narrative disclosure of material factors accompanying the SCT. The SCT provides only historical information about the amount of compensation paid or payable in respect of the prior three years. As a result, this shareholder vote relates only to the amount of compensation and not the policies underlying it. Compensation in the SCT is broken down into a number of categories: salary, bonus, stock awards, options, non-equity incentive plan compensation, change in pension value and nonqualified deferred compensation earnings, and a catchall, all other compensation (which includes perquisites).