The Advisors' Blog

– Broc Romanek, CompensationStandards.com

One of those things I’ve been meaning to blog about – and no one else was blogging about until Mark Borges covered it this morning in his blog. A few weeks ago, Ed Durkin and the United Brotherhood of Carpenters Pension Fund has submitted a new shareholder proposal to 20 companies seeking a triennial vote on pay rather than an annual one.

The rationale is that this would help shareholders by reducing the number of companies they would have to analyze each year – and would help companies as they wouldn’t have to face an annual battle over their pay practices.

As Mark notes, the triennial executive pay (known as “TEP”) proposal would require:

– In addition to an overall vote on named executive officer compensation, separate votes on a company’s (i) annual incentive plan, (ii) long-term incentive plan, and (iii) post-employment benefits (including retirement, severance, and change-in-control payments); and

– A “forum” between the compensation committee and shareholders on at least a triennial basis to discuss senior executive compensation policies and practices.

In talking to company representatives, they obviously find a vote every three years more palatable – although I think they have overlooked the fact that the Carpenter’s forum idea is something that could be much more frequent (eg. Intel recently launched a stockholder forum leading up to tomorrow’s annual shareholders meeting).

I agree with Mark that this idea’s weakness is how to deal with corporate implosions between the triennial votes. My solution would be a safety valve where shareholders could gather and trigger a vote, much like the idea of triggering proxy access. In other words, if a group of shareholders got together that met a ownership threshold and filed some type of certification with the SEC that states they seek a say-on-pay vote (with the filing made by a particular deadline), the company would be forced to put say-on-pay on the ballot.

But note that I’m still dubious whether say-on-pay is really meaningful anyways. I would rather rely on votes “against” compensation committee members as the signal to the board that shareholders are unhappy over pay practices. In a say-on-pay world, I worry that board will routinely get their pay packages blessed (see yesterday’s WSJ article) and that excessive pay practices won’t change.