The Advisors' Blog

Pay ratio is coming full circle. Remember when the rule went into effect and everyone was really worried that their company would be canceled (or whatever the word was for that in 2017)? And then most companies just provided the basics of what Item 402(u) requires and nobody paid much attention. Seemed like kind of a nothingburger. For a minute.

Here’s part of a letter that Carl Icahn sent to Kroger on Tuesday:

Even in a hard-nosed capitalistic system like ours, it is obscene that a CEO makes 900 times what workers earn. It is truly difficult to point to anything comparable, even when considering the grave injustices in the early days of the Industrial Revolution. At Kroger, amazingly, it will take an average worker 20 years to make what the CEO earns in one week. In my 40 years of being an activist, I have never seen anything like this.

Yes, you read that right. Billionaire Carl Icahn is taking issue with the pay gap between a company’s CEO and its median employee. And he wants to put 2 directors on Kroger’s board to help solve the problem! (He owns 100 shares of Kroger stock, by the way.)

While I have previously blogged that pay ratio is becoming a factor in say-on-pay…which can lead to lower director support and potentially catch the attention of activists, this is much more direct! Carl Icahn isn’t waiting around for low say-on-pay votes to tip him off to vulnerable directors. He’s just finding the high pay ratio. That’s the vulnerability.

While this might seem like a very odd-duck scenario, keep in mind that the SEC’s universal proxy rules go into effect later this year and will make it much easier for concerned shareholders to try to nominate dissidents to your board. If the pandemic didn’t already spur compensation committees to take a close look at wage inequality when setting CEO pay, maybe proxy contests will. Better to give your directors a heads up now versus when activists are at the gate.

Stay tuned for an announcement soon about our October “Proxy Disclosure & Executive Compensation” Conferences…and more. We’ll be discussing what boards and their advisors should be doing to protect themselves from this type of situation – and you won’t want to miss it. Hat tip to one of our speakers, Georgeson’s Hannah Orowitz, for alerting me to this proxy contest.

– Liz Dunshee