June 25, 2008

McCain Joins “Say on Pay” Wagon

Recently, Senator John McCain has been speaking out against excessive executive compensation and has now joined Senator Obama in calling for mandatory “say on pay.” Here is a Business Week article about this – and here is an excerpt from McCain’s June 10th speech:

“Americans are right to be offended when the extravagant salaries and severance deals of CEOs … bear no relation to the success of the company or the wishes of shareholders,” says McCain, adding that some of those chief executives helped bring on the country’s housing crisis and market troubles. “If I am elected president, I intend to see that wrongdoing of this kind is called to account by federal prosecutors. And under my reforms, all aspects of a CEO’s pay, including any severance arrangements, must be approved by shareholders.”

The proposals that both Senators Obama and McCain support not only would provide shareholders an annual non-binding vote on executive pay, they would also provide shareholders with a separate non-binding vote when a company gives a golden parachute to executives while simultaneously negotiating to buy or sell the company.

With H&R Block joining the list, there are now nine companies that have agreed to a non-binding vote on pay.

Quick Survey: How R&D Intersects with Setting Bonus Amounts

On, we have posted this quick survey to learn more about how research & development costs play a role when it comes time to set bonus levels for senior managers.

This survey was suggested by a doctoral student who is conducting research to gain additional insight into some of the practical issues and challenges faced by those in charge of setting and disclosing executive pay. If you ever have survey ideas, please drop me a line.

Board-Shareowner Communications on Executive Compensation

RiskMetrics is not the only entity seeking comments on a paper. Stephen Davis is looking for input on this Millstein Center paper: “Board-Shareowner Communications on Executive Compensation.” The 17-page paper – which is an executive summary and initial findings – presents findings of a six-month research project that included interviews with directors, senior managers and investors on their views of dialouge regarding executive pay. A final paper will be published once more input is received.

Logically, the “say on pay” movement is addressed in the paper. Given that the media contains reports that some investors are now rethinking their views on “say on pay,” some of the research might be dated already, even though it’s not that old. I personally talked to some investors who now find themselves on the other side; and I find myself leaning against it for now (as I have blogged about). So please send Stephen your comments.

On pages 6-7 of the paper, there is this finding related to say on pay:

Compulsion, through crisis or other acute events, is the foundation under most current US corporate initiatives to foster governance dialogues with institutional owners.

Evidence suggests that scandals over executive compensation – whether payouts for failure or backdating stock options – were key contributors in 2007 in motivating certain boards to increase their interaction with shareowners. Exercises in board dialogue on governance have generally not come about in the United States as a product of proactive, long-term strategic outreach by untroubled corporations. This reality has contributed to growing investor conviction that regular dialogue will not spread widely in the absence of compulsion, even where companies are troubled. As a result, many funds back a UK-style annual advisory vote on executive pay policies, a measure that helped open channels of communication between UK boards and their equity owners.

The Consultants Speak: How the Latest Compensation Disclosures Impacted Practices

Join Mike Kesner, Doug Friske and Fred Whittlesey tomorrow for this webcast: “The Consultants Speak: How the Latest Compensation Disclosures Impacted Practices.” It should be pretty interesting to see if the tail is wagging the dog…

– Broc Romanek