EXECUTIVE COMPENSATION

Some shareholder proposals involve calls for disclosure of or shareholder influence over management pay packages. These proposals are classified as “executive-compensation” proposals. Most executive-compensation proposals have failed to pass, with the exception of so-called “say on pay” proposals calling for shareholders to give advisory votes on executive-compensation packages. Such advisory votes are now mandatory under the new Dodd-Frank financial reform legislation, although shareholders have the option to hold such votes annually, biannually, or triennially.

Supporters of these proposals tend to argue that executive compensation is excessive and insufficiently monitored by corporate boards. Critics tend to assert that shareholders are ill-equipped to understand the market for corporate talent and express concern that labor unions, through their pension-fund holdings, can exploit these proposals to win concessions from management, including those altogether unrelated to compensation.

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SUBCATEGORIES

• Say on Pay —In recent years, numerous shareholder proposals called on management to submit their executive pay packages to shareholders on a regular basis, for an advisory vote (i.e., a vote not binding on the board of directors). Beginning in 2011, as authorized under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the federal Securities and Exchange Commission promulgated rules that mandated such “say on pay” votes for all companies whose shares traded to the broader public on stock exchanges.



• Say on Frequency —Under Dodd-Frank’s requirement that companies hold shareholder votes on executive compensation, SEC regulations permit annual, biennial, or triennial votes. Thus, beginning in 2011, all publicly held companies had to hold advisory shareholder votes on the preferred frequency of “say on pay” votes. Once an initial frequency is determined, shareholders must be offered a “say on frequency” vote again within six years.



• Equity Compensation Rules—These proposals place certain limits on executive compensation plans involving the grant of equity or stock options. Some such proposals require that stock payments to executives be held for certain minimum periods, such as two years post-employment. Others require that stock payments can be cashed in only in increments of, say, 20 percent per year. Other proposals require equity payments be tied to specific performance goals or prohibit executives from hedging their exposure to the company’s stock.



• Golden Parachutes—Many executive compensation contracts call for sizable payouts to management in the event that control of the company changes hands, e.g., through a merger or acquisition. Intended to eliminate management’s incentive to fight changes in control that might endanger its position, even if beneficial to shareholders, these payouts are typically called “golden parachutes” by critics. Proposals involving these payouts often limit payments to no more than 2.99 times the executive’s total annual pay. Others allow such payments to be made only when an executive’s employment has been terminated. Some proposals limit certain payouts covering executives’ tax liabilities or prohibit executives from accelerating the exercise of their equity awards after a change of control.



• Golden Coffin —These proposals would limit provisions in many executive employment contracts that include arrangements for certain compensation and benefits to be paid to the estate of the executive in the event of the executive’s death.