The Advisors' Blog

– Broc Romanek, CompensationStandards.com

With the proxy season in full bloom, the mass media is covering the latest just like us. For example, there was this WSJ article on Thursday about ISS recommendation’s on Disney – and then this follow-up on Friday with Disney’s rebuttal (here’s Steve Quinlivan’s related blog). Not to mention the two WSJ articles noted in this blog by Mike Melbinger. And then there is this WSJ article by Joann Lublin from Thursday:

Shareholder votes on executive pay are starting to change the shape of compensation at some big companies. A group of institutional investors recently joined forces to seek executive-pay and governance changes at 10 companies where nonbinding “say on pay” votes narrowly passed last year. The informal coalition, led by unions and public pension funds, already has persuaded Allstate Corp., Northern Trust Co. and five other companies to ban “gross-up” payments to executives. Those payments cover taxes executives owe on benefits provided by their employer.

Coalition members also withdrew 2012 shareholder resolutions opposing pay policies after a few companies required top managers to hold their company’s stock longer and put limits on accelerated vesting of equity grants after a takeover. “The changes demonstrate that say-on-pay votes are working to make companies more responsive to shareholder concerns about runaway CEO pay levels,” said Brandon Rees, deputy director for the AFL-CIO’s Office of Investment. He helped coordinate the coalition, which includes the International Brotherhood of Electrical Workers union and the pension system for firefighters in Kansas City, Mo.
In legally mandated advisory votes on executive-compensation policies last year, 358 publicly held companies got less than 80% support from their investors, according to proxy adviser Institutional Shareholder Services. Some of those companies have revamped pay practices, rather than face investor criticism during annual meetings this year.

Among them is Allstate. The big insurer got the support of about 58% of the votes cast for its executive-pay practices, and Chief Executive Tom Wilson was re-elected to the board by just 68% of the votes, the lowest margin last year for any CEO of a company in the Standard & Poor’s 500-stock index, according to ISS. After the vote, Mr. Wilson spoke with owners of 30% of Allstate’s shares, because he wanted to know “why people were concerned,” he said in an interview. “My job is to make our shareholders happy.” As a result of those efforts, the company was on its way to changing its practices when coalition members submitted four resolutions for this year’s annual shareholders’ meeting, Mr. Wilson said.

During talks, Allstate accepted a compromise suggested by the firefighters pension plan: require executives to hold on to 75% of their company shares until they meet their stock-ownership requirements. “That was a good idea,” Mr. Wilson recalled. Similarly, Allstate named its first permanent lead independent director last November, just before the electrical workers’ union offered a resolution favoring a split between the chairman and CEO posts. A separate chairman isn’t “the right model right now,” said Mr. Wilson, who holds both titles at the insurer. The union pulled its proposal after Allstate agreed to expand the lead director’s duties. They now include communicating with significant shareholders about broad corporate policies and practices.

Investment manager Northern Trust did away with tax gross-ups for new employment accords with top officers and tightened stock ownership rules, according to Greg Kinczewski, general counsel for Marco Consulting Group, an investment adviser for several coalition members. A Northern Trust spokesman confirmed both changes, and said the company’s proxy statement, scheduled for release next week, will “speak for itself.”