October 15, 2009

Say-on-Pay: Prudential Becomes First to Adopt Biennial Model

Recently, I blogged about how Microsoft became the first company to take a triennial approach to say-on-pay. Yesterday, Prudential adopted a biennial model – starting with its 2010 annual shareholders’ meeting, the company will have a non-binding say-on-pay on its ballot every other year.

More Executive Pay Surveys: A Comparison

Following a trend commenced last year by Schering-Plough, industry rivals Lockheed Martin and Northrop Grumman recently posted shareholder surveys regarding executive pay on their websites. The principal idea behind these surveys is to provide a better avenue than say-on-pay for shareholders to weigh in on compensation (egs. shareholders can provide specific comments and the questions are more narrowly focused).

You may recall that I recently conducted a podcast with Susan Wolf of Schering-Plough regarding how the experience worked out for them this past proxy season. Schering-Plough intends to announce the results of its survey sometime during the next few months. Amgen also canvassed shareholders this past proxy season. We have compiled all these surveys in our “Say-on-Pay” Practice Area.

A Comparison of the Surveys

1. Posting Surveys Online – The two newest surveys are posted online – but Schering-Plough mailed their survey as part of their proxy materials (as noted in this press release). Amgen also posted its survey online. It will be interesting to see whether posting surveys increases – or decreases – shareholder participation. My guess is “increase” – but you never know (for example, note how e-proxy has resulted in a decrease in retail votes).

2. Evaluation of CD&A Transparency – To some degree, all of the surveys piggyback on TIAA-CREF’s list of ten questions for evaluating CD&As that was released back in August ’07 (in fact, Amgen’s survey is identical to TIAA-CREF’s survey). All of the surveys ask whether shareholders found their CD&As clear and useful and allow for five types of answers.

3. Tying Pay to Performance – The surveys ask whether shareholders think pay is tied to performance in slightly different ways. Lockheed Martin’s survey asks whether its executive pay as disclosed ties pay to performance and is aligned with shareholder value. Northrop Grumman’s survey asks whether its compensation play is aligned with the long-term creation of shareholder value. Schering-Plough asks whether its executive pay program is tied to performance and then also drills down with questions about specific performance metrics.

4. Does Pay Matter? – Northrop Grumman asks two interesting questions that the others do not: whether the shareholder analyzed the company’s pay policies and practices before becoming a shareholder and whether the company’s compensation plan was a material consideration in becoming a shareholder.

5. Retention and Mix of Equity – Schering-Plough was the only company to ask whether shareholders thought that the company’s pay plan allows it to attract and retain well-qualified executives, as well as ask questions about the mix of equity in both its executive’s and director’s pay.

6. Whether Shareholders Support Pay – Both of the newest surveys – Lockheed Martin and Northrop Grumman – cut to the chase and ask the $64,000 question: whether shareholders support the company’s compensation plan as described in the CD&A.

7. Additional Comments – All of the surveys allow for shareholders to submit their own comments, a smart move since the use of multiple choice answers can be limiting. Amgen’s survey doesn’t even provide an opportunity to select from a multiple choice menu – each question has a text box below it. I think providing multiple choice selections will increase the likelihood of obtaining more responses – as some potential respondents may be daunted by the burden of spending too much time on a survey.

Note that Northrop Grumman decided to also use its survey to solicit feedback on two non-compensation related matters: allowing shareholders to call a special meeting on any issue and if so, what minimum percentage of shares should be the threshold to do so.

San Francisco Conference Registration Ends Tomorrow!

Due to unprecedented demand and limited space at our conference hotel for the “17th Annual NASPP Conference,” we are forced to end San Fran Conference Registrations at the end of tomorrow, Friday, October 16th for those attending live in San Francisco. This includes attending the pre-conference – the “4th Annual Proxy Disclosure Conference” – in San Francisco.

You Can Still Attend Via Video Webcast: In the alternative, you can still attend the “6th Annual Executive Compensation Conference” (held on 11/10) – which is paired with the “4th Annual Proxy Disclosure Conference” (11/9) – by video webcast. You automatically get to attend both Conferences for the price of one. Here is the agenda for both Conferences.

Order Audio from NASPP Conference: In addition, you can still hear each – and any – panel you wish from the NASPP Conference by ordering the downloadable audio and course materials.

– Broc Romanek