Executive Compensation

Labor Unions Key Drivers of Shareholder Proposals on Executive Compensation;

Early Returns in 2011 Reveal Shareholder Preference for Annual Advisory Votes on Executive Pay

One of the more significant changes to corporate governance in the recent Dodd-Frank Wall Street Reform and Consumer Protection Act is the requirement, in Section 951, that all publicly traded corporations submit executive compensation to a non-binding advisory vote on an annual, biennial, or triennial basis. Such executive compensation advisory vote plans—so-called “say on pay” proposals—have dominated shareholder proposal activity in recent years. This Manhattan Institute Proxy Monitor Finding looks at data gathered from the Institute’s database to examine:

a) Key trends in executive-compensation-related shareholder proposal activity;

b) Early returns in 2011 say-on-pay votes; and

c) Expected key areas of focus for future executive-compensation-related proposals.


a) Key trends in executive-compensation-related shareholder proposal activity

Since 2008, say-on-pay shareholder proposals requiring corporations to submit executive compensation plans to an advisory shareholder vote have constituted over 49 percent of all executive-compensation-related shareholder proposals brought to a vote at Fortune 100 companies. Of the 107 such proposals voted on, fourteen were approved by a majority of shareholders, and another fifty-seven received over 40 percent of shareholders’ votes.

A prominent feature of executive-compensation-related shareholder proposals submitted over the last three years is the active role played by labor unions, both public and private. The two most frequent shareholder sponsors of proposals related to executive compensation have been the American Federation of State, County and Municipal Employees (AFSCME), with twenty-three proposals, and the AFL-CIO, with twelve.[1] Overall, labor unions and their pension funds introduced 70 proposals related to executive compensation to Fortune 100 companies since 2008, constituting over 38 percent of all identified proposals coming to a vote. Given corporate management’s tendency to negotiate with sponsors of shareholder proposals—and sensitivity to compensation issues—the particular focus paid by organized labor to executive compensation buttresses the claim that unions are leveraging the shareholder-proposal process to advance agendas which may be at odds with the interests of other investors.[2]

b) Early returns in 2011 say-on-pay votes

Under Dodd-Frank’s Section 951, executive-compensation advisory votes are now mandatory for public companies. In 2011, companies with annual meetings scheduled after January 21 must hold a vote to determine the frequency of such votes, which under the statute can be every one to three years.

In 2011’s earliest annual meetings, shareholders have expressed some preference for holding annual advisory votes on executive compensation. According to shareholder-advisory firm Risk Metrics, across all large- and mid-cap U.S. companies, 62.8 percent of shareholders have supported annual advisory votes on executive compensation.[3]

Of the four companies in the Fortune 100 to have voted on the issue thus far—Johnson Controls (JCI), Costco (COST), Emerson Electric (EMR), and Tyson Foods (TSN)—shareholders have supported annual advisory votes on executive compensation at each company save Tyson, which has a dual-share structure giving insiders effective voting control. The boards of each company had recommended triennial votes. (The boards of the next two Fortune 100 companies holding “say on pay” frequency votes, Apple (AAPL) and John Deere (DE), recommended that shareholder advisory votes occur annually. Each company is holding its annual meeting on February 23.)

c) Expected key areas of focus for future executive-compensation-related proposals

With say-on-pay votes a new feature of the post-Dodd-Frank corporate governance landscape, what topics related to executive pay might be expected to figure prominently among shareholder proposals going forward? Among all executive-compensation-related shareholder proposals submitted in the last three years, apart from say-on-pay measures, eighteen garnered over 40 percent of shareholders’ votes. These proposals included:

  • Proposals to prohibit so-called “golden coffin” agreements making incentive payments to executives after their death. Sponsors of such proposals argue that executives, once dead, can no longer respond to incentives. Management typically defends such contractual arrangements, agreed to before death, as key components of competitive benefit packages—not unlike life insurance policies—that attract and retain critical upper management.
  • Proposals to limit executive payouts following change-of-control transactions. Sponsors criticize the practice of paying executives more than 2.99 times pay in the event of a corporate change of control, as well as the practice of making “tax gross-up payments” to eliminate taxation of such payments. Management typically defends change-of-control payments as better aligning management’s incentives with shareholders to seek merger and acquisition opportunities that imperil management but increase share value. Management defends tax gross-up payments as necessary to normalize executive pay across regimes with substantial variation in tax treatment.
  • Proposals to exclude the application of so-called “pension credits” to performance-based executive pay. Sponsors of such proposals argue that pension-plan gains are unrelated to corporate operations and should not factor in incentive-pay plans; sponsors also criticize pension-plan accounting more generally. Management typically argues that incentive-pay plans are best aligned with standard definitions of net income consistent with generally accepted accounting principles and Securities and Exchange Commission regulations.

Unions will likely continue to play a prominent role in advancing such proposals. Labor unions and their pension funds sponsored thirteen of the fifteen disclosed sponsors of non-say-on-pay executive-compensation proposals to obtain positive votes from over 40 percent of shareholders. Such union sponsors included AFSCME; the International Brotherhood of Teamsters; the Service Employees International Union (SEIU) Master Trust; and public-employee unions from Massachusetts, New York City, and Kansas City, Missouri. In at least some of these proposals, unions’ interests are generally adverse to the interests of other shareholders; for instance, change-of-control transactions typically benefit shareholders but can lead to layoffs or employee pay and benefit modifications.

This report analyzes information gathered from the Manhattan Institute’s database, which contains information relating to all shareholder proposals submitted for shareholder vote between 2008 and 2010, for the 100 largest American public companies.


  1. Evelyn Davis, the most frequent introducer of shareholder proposals overall during the period, also submitted twelve proposals related to executive compensation since 2008.
  2. See, e.g., Stephen M. Bainbridge, Shareholder Activism in the Obama Era, UCLA School of Law, Law-Econ Research Paper No. 09-14, July 22, 2009, available at;  Stephen Bainbridge, Unions Abusing Pension Funds for Politics, Wash. Examiner, Sept. 6, 2007, available at; see also Manhattan Institute for Policy Research, Trial Lawyers, Inc.: California 12-13(2005), available at
  3. See Ted Allen, Investors Back Annual Pay Votes by a 2-1 Margin, Feb. 17, 2011, at



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