The Wall Street Journal of Monday January 12, 2009 contained an article relative to the frustration of investors over big executive payouts. The article discussed resolutions being submitted by shareholder groups to limit executive compensation.
The article contained a prophetic statement “All of the shareholder resolutions are non-binding and it would be unsusal if any won majority support among shareholders on their first try.”
Shareholders should examine why passage of resolutins would be “unusual”. First, compensation packages are prepared for the Board of Directors by the Compensation Committee of the Board. Next, the Board solicits proxy votes and usually recommends against all shareholder submitted proposals. Finally, the Board usually holds enough proxies to determine the outcome of any vote.
The method of selecting Directors, even though individually voted into office by shareholders, is very suspect. There is usually a Nomination Committee composed of supposedly “independent” Directors that recommends the names of candidates for Board seats that appear on the Proxy statement. But, it remains to be seen that the selection is made without any “suggestion” or pressure from “inside” directors and/or officers. The only thing certain is that names placed in nomination did not come from the shareholdeers.
Directors in large corporations are paid well and are extended many perks by management. The level of emoluments extended to directors are more than adequate to massage and mold votes in favor of what the CEO’s want. Thus, the very notion of Director independence is questionable.
If Directors were truly “independent”, many shareholder proposals would be submitted for a vote with a favorable recommendation from the Board but that is just not the case.
Shafreholders must take a more dramatic stand to make shareholder proposals limiting executive compensation binding on the corporation and to assure their passage. This action could include greater activity to unseat directors who are members of the Compensation Committee for faling to reign in management as well as efforts to bring about the exposure or dismissal of executives who fail to perform but continue to draw down big compensation packages.
February 4, 2009 – A reader basically asks what shareholders can do? For starters, when the proxy materials are received vote against all candidates for the board. Next, send e-mails to every one you know that may be a shareholder and urge them to do the same. Next, send e-mails to the shareholder relations department of the company and let the company know how they feel. If enough people do this, the over bloated executives may get the idea.