Plum Creek Timber Co. – Say on Pay
RESOLVED
Shareholders of Plum Creek Timber Company request the board of directors to adopt a policy that provides shareholders the opportunity at each annual shareholder meeting to vote on an advisory resolution, proposed by management, to ratify the compensation of the named executive officers (“NEOs”) set forth in the proxy statement’s Summary Compensation Table (the “SCT”) and the accompanying narrative disclosure of material factors provided to understand the SCT (but not the Compensation Discussion and Analysis). The proposal submitted to shareholders should make clear that the vote is non-binding and would not affect any compensation paid or awarded to any NEO.
SUPPORTING STATEMENT
In our view, senior executive compensation at Plum Creek Timber has not always been structured in ways that best serve shareholders’ interests. For example, while shareholders were experiencing negative total shareholder return for 2008, CEO Rick Holley received more than $8 million in reported compensation, including more than $6 million in option awards.
We believe existing SEC rules and stock exchange listing standards do not provide shareholders with sufficient mechanisms for providing input to boards on senior executive compensation. In contrast, in the United Kingdom, public companies allow shareholders to cast a vote on the “directors’ remuneration report,” which discloses executive compensation. Such a vote isn’t binding, but gives shareholders a clear voice that could help shape senior executive compensation. A 2007 study of executive compensation in the U.K. before and after the adoption of the shareholder advisory vote there found that CEO cash and total compensation became more sensitive to negative operating performance after the vote’s adoption. (Sudhakar Balachandran et al., “Solving the Executive Compensation Problem through Shareholder Votes? Evidence from the U.K.” (Oct. 2007).)
Currently U.S. share exchange listing standards require shareholder approval of equity-based compensation plans; those plans, however, set general parameters and accord the compensation committee substantial discretion in making awards and establishing performance thresholds for a particular year. Shareholders do not have any mechanism for providing ongoing feedback on the application of those general standards to individual pay packages.
Similarly, performance criteria submitted for shareholder approval to allow a company to deduct compensation in excess of $1 million are broad and do not constrain compensation committees in setting performance targets for particular senior executives. Withholding votes from compensation committee members who are standing for reelection is a blunt and insufficient instrument for registering dissatisfaction with the way in which the committee has administered compensation plans and policies in the previous year.
Accordingly, we urge our board to allow shareholders to express their opinion about senior executive compensation by establishing an annual referendum process. The results of such a vote could provide our company with useful information about shareholders’ views on the company’s senior executive compensation, as reported each year, and would facilitate constructive dialogue between shareholders and the board.
United Health Group – Say on Pay
RESOLVED
Shareholders of UnitedHealth Group request the board of directors to adopt a policy that provides shareholders the opportunity at each annual shareholder meeting to vote on an advisory resolution, proposed by management, to ratify the compensation of the named executive officers (“NEOs”) set forth in the proxy statement’s Summary Compensation Table (the “SCT”) and the accompanying narrative disclosure of material factors provided to understand the SCT (but not the Compensation Discussion and Analysis). The proposal submitted to shareholders should make clear that the vote is non-binding and would not affect any compensation paid or awarded to any NEO.
SUPPORTING STATEMENT
Former UnitedHealth Group CEO William McGuire recently agreed to pay $30 million and forfeit 3.7 million stock options as part of what the Wall Street Journal has referred to as, “one of the largest executive-pay givebacks in history.” The prominence of this and other high profile cases has led to increasing investor concern over ballooning executive compensation. It has also led to frustration over the current lack of any formal mechanism for investors to express opinions on the compensation of named executive officers.
Evidencing this concern, votes on “Say on Pay” resolutions in 2008 averaged 43% in favor, with ten resolutions receiving the support of a majority of shares voted. Nine leading public companies have now agreed to an advisory vote. Following Aflac’s first advisory vote in 2008, the company’s Chairman and CEO said, “An advisory vote on our compensation report is a helpful avenue for our shareholders to provide feedback on our pay-for-performance compensation philosophy and pay package.”
The influential proxy voting advisory service RiskMetrics Group recommends voting in favor of “Say on Pay” resolutions, noting: “RiskMetrics encourages companies to allow shareholders to express their opinions of executive compensation practices by establishing an annual referendum process. An advisory vote on executive compensation is another step forward in enhancing board accountability.”
RiskMetrics is not alone in its support of allowing investors to have a say on pay. In April 2007, the U.S. House of Representatives passed a bill to allow annual advisory votes by a 2-to-1 margin. During the 2008 presidential campaign, Senators Obama and McCain both voiced support for say on pay. In Europe, the EU Commission has recommended that the directors’ remuneration policy be submitted to a vote to increase accountability.
The Council of Institutional Investors, which has also endorsed advisory votes on pay, has stated that, “Executive compensation is the most critical and visible aspect of a company’s governance.” Shortly after the options-backdating scandal that led to the resignation of former Chair and CEO William McGuire, current CEO Stephen Hemsley offered assurances that UnitedHealth would, “be unrelenting in achieving the highest standards for governance and integrity.” (BusinessWeek.com, 10/18/06, “The Ties UnitedHealth Failed to Disclose”) We urge our board to uphold this promise by instituting this best- practice governance reform and allowing shareholders to have a say on pay.
‘Say on Pay’ Gathers Steam Heading Into 2009
Are we the only ones wondering why the daily sight of Wall Street and Detroit execs begging for bailouts while making off with millions hasn’t incited rioting in the streets? Consider just one case. Former Merrill Lynch CEO Stanley O’Neal walked away with $161 million dollar exit package shortly before the company’s high stake bets in the mortgage market unraveled, revealing losses that exceeded all the profits the firm had earned over the past 20 years. Investors tallied their losses, taxpayers subsidized the takeover of Merrill, and thousands of employees joined the ranks of the unemployed.
How did we arrive at this point? The recipe included convoluted pay structures, short-term incentive bonuses, increasingly complex padded stock options, cronyism and complicit shareholders. The result was a poisonous stew that decoupled pay and performance. It’s been labeled the tails-you-win, heads-you-win-even-more scheme, and as we are seeing, it insulates CEOs from the consequences of disastrous risk-taking.
Investors share the responsibility for the environmental, social and financial crises that short-termism and shoddy corporate governance practices have invited. We can no longer afford to tolerate pay packages that encourage short-termism. The issue begs regulatory and legislative reform. But until or unless government action solves the problem, we must continue to promote greater shareholder oversight of executive compensation.
Trillium is part of a broad coalition of investors pressing companies to give shareholders non-binding advisory voting responsibility on executive pay. If corporate boards knew, the theory goes, that shareholders were to vote on pay packages, then the board would provide better disclosure and dialogue with concerned shareholders ahead of time, and those packages would become better linked to performance. The vote is designed to discourage rubber-stamping.
It is more than theory. ‘Say on pay’ voting as been tried and tested for the past six years in the U.K. Researchers at Yale University’s Millstein Center for Corporate Governance & Performance examined the impacts of the London Stock Exchange’s experience with ‘say on pay’ votes since 2002. They concluded ‘say on pay’ is a “demonstrated propellant” of healthier relations between management and shareholders. It is also building a stronger link between performance and CEO compensation. At a recent U.S. House Committee hearing, lead author Stephen Davis recounted the jarring 2003 defeat handed GlaxoSmithkline’s Board by shareholders who refused to support the top executive pay packages. Davis said the defeat, “produced a virtual overnight increase in the level of dialogue between companies and shareowners.” A former board member said the Glaxo loss “concentrated the mind wonderfully. Now the board must base renumeration on performance and be scrupulous about it.”
‘Say on pay’ alone won’t be the silver bullet that stops oversized pay packages, but it provides a healthier framework for communication. Roughly 100 ‘say on pay’ proposals will be filed in 2009. Trillium Asset Management Corporation has co-filed ‘say on pay’ resolutions at Citigroup, Intel, and Unitedhealth Group.1
Legislation could help move ‘say on pay’ closer to reality. In 2007, the House voted 2 to one in support for ‘say on pay’ legislation in 2007, and then-Senator Obama’s co-sponsored the accompanying Senate bill. Confident of victory, labor activists are upping the ante by filing nearly four dozen resolutions that press for new compensation models better linking pay with performance and longer term measures. Some would extend the minimum period senior executives must hold on to stock options to two years beyond their termination or retirement. Other filers are seeking stricter compensation limits than those required by the government’s Troubled Asset Relief Program (TARP), and up to 20 proposals are expected to be filed asking for a shareholder vote on “golden coffin” agreements that provide generous death benefits to families of CEOs and other top executives.
Some companies have gotten the SEC to omit a newest resolution relating to TARP, but given an estimated 215 governance proposals being tracked by the advisory firm RiskMetrics, investors are emboldened to keep the heat on top management to enact real corporate governance reform in 2009.
1. The lead filers of these resolutions are, respectively, the American Federation of State, Count, and Municipal Employees, Walden Asset Management, and the Nathan Cummings Foundation.
Intel – Say on Pay
RESOLVED
The shareholders of Intel request the board of directors to adopt a policy that provides shareholders the opportunity at each annual shareholder meeting to vote on an advisory resolution, proposed by management, to ratify the compensation of the named executive officers (“NEOs”) set forth in the proxy statement’s Summary Compensation Table (the “SCT”) and the accompanying narrative disclosure of material factors provided to understand the SCT (but not the Compensation Discussion and Analysis). The proposal submitted to shareholders should make clear that the vote is non-binding and would not affect any compensation paid or awarded to any NEO.
SUPPORTING STATEMENT
Investors are increasingly concerned about mushrooming executive compensation especially when insufficiently linked to performance. In 2008, shareholders filed close to 100 “Say on Pay” resolutions. Votes on these resolutions have averaged 43% in favor, with ten votes over 50%, demonstrating strong shareholder support for this reform.
An Advisory Vote establishes an annual referendum process for shareholders about senior executive compensation. We believe the results of this vote would provide the board and management useful information about shareholder views on the company’s senior executive compensation.
In its 2008 proxy Aflac submitted an Advisory Vote resulting in a 93% vote in favor, indicating strong investor support for good disclosure and a reasonable compensation package. Daniel Amos, Chairman and CEO said, “An advisory vote on our compensation report is a helpful avenue for our shareholders to provide feedback on our pay-for-performance compensation philosophy and pay package.”
To date eight other companies have also agreed to an Advisory Vote, including Verizon, MBIA, H&R Block, Ingersoll Rand, Blockbuster, and Tech Data. TIAA-CREF, the country’s largest pension fund, has successfully utilized the Advisory Vote twice.
Influential proxy voting service RiskMetrics Group, recommends votes in favor, noting: “RiskMetrics encourages companies to allow shareholders to express their opinions of executive compensation practices by establishing an annual referendum process. An advisory vote on executive compensation is another step forward in enhancing board accountability.”
The Council of Institutional Investors endorsed advisory votes and a bill to allow annual advisory votes passed the House of Representatives by a 2-to-1 margin. We believe the statement like approach for company leaders is to adopt an Advisory Vote voluntarily before required by law.
We believe that existing U.S. Securities and Exchange Commission rules and stock exchange listing standards do not provide shareholders with sufficient mechanisms for providing input to boards on senior executive compensation. In contrast, in the United Kingdom, public companies allow shareholders to cast a vote on the “directors’ remuneration report,” which discloses executive compensation. Such a vote isn’t binding, but gives shareholders a clear voice that could help shape senior executive compensation.
We believe that a company that has a clearly explained compensation philosophy and metrics, reasonably links pay to performance, and communicates effectively to investors would find a management sponsored Advisory Vote a helpful tool.
We urge our board to allow shareholders to express their opinion about senior executive compensation through an Advisory Vote.
UnitedHealth Group – Say on Pay
RESOLVED
The shareholders of UnitedHealth Group request the board of directors to adopt a policy that provides shareholders the opportunity at each annual shareholder meeting to vote on an advisory resolution, proposed by management, to ratify the compensation of the named executive officers (“NEOs”) set forth in the proxy statement’s Summary Compensation Table (the “SCT”) and the accompanying narrative disclosure of material factors provided to understand the SCT (but not the Compensation Discussion and Analysis). The proposal submitted to shareholders should make clear that the vote is non-binding and would not affect any compensation paid or awarded to any NEO.
SUPPORTING STATEMENT
Former UnitedHealth Group CEO William McGuire recently agreed to pay $30 million and forfeit 3.7 million stock options as part of what the Wall Street Journal has referred to as, “one of the largest executive-pay givebacks in history.” The prominence of this and other high profile cases has led to increasing investor concern over ballooning executive compensation. It has also led to frustration over the current lack of any formal mechanism for investors to express opinions on the compensation of named executive officers.
Evidencing this concern, votes on “Say on Pay” resolutions in 2008 averaged 43% in favor, with ten resolutions receiving the support of a majority of shares voted. Nine leading public companies have now agreed to an advisory vote. Following Aflac’s first advisory vote in 2008, the company’s Chairman and CEO said, “An advisory vote on our compensation report is a helpful avenue for our shareholders to provide feedback on our pay-for-performance compensation philosophy and pay package.”
The influential proxy voting advisory service RiskMetrics Group recommends voting in favor of “Say on Pay” resolutions, noting: “RiskMetrics encourages companies to allow shareholders to express their opinions of executive compensation practices by establishing an annual referendum process. An advisory vote on executive compensation is another step forward in enhancing board accountability.”
RiskMetrics is not alone in its support of allowing investors to have a say on pay. In April 2007, the U.S. House of Representatives passed a bill to allow annual advisory votes by a 2-to-1 margin. During the 2008 presidential campaign, Senators Obama and McCain both voiced support for say on pay. In Europe, the EU Commission has recommended that the directors’ remuneration policy be submitted to a vote to increase accountability.
The Council of Institutional Investors, which has also endorsed advisory votes on pay, has stated that, “Executive compensation is the most critical and visible aspect of a company’s governance.” Shortly after the options-backdating scandal that led to the resignation of former Chair and CEO William McGuire, current CEO Stephen Hemsley offered assurances that UnitedHealth would, “be unrelenting in achieving the highest standards for governance and integrity.” (BusinessWeek.com, 10/18/06, “The Ties UnitedHealth Failed to Disclose”) We urge our board to uphold this promise by instituting this best- practice governance reform and allowing shareholders to have a say on pay.
2008 Advocacy Priorities
For the 2007-2008 shareholder resolution season (which roughly parallels an academic year), Trillium Asset Management Corporation (“Trillium”) has filed 18 shareholder proposals addressing a wide range of environmental and social justice concerns. Thirteen resolutions on which we are acting as lead* filer are highlighted in this article. All the proposals we are involved in are posted on our web site.
Among its Wall Street peers, Bank of America (BAC)‘s internal greenhouse gas (GHG) reduction goals look good upon a first read: the bank has pledged that emissions from its own offices by will decline 7 percent from 2004 levels by 2008. Yet the bank finances GHG-intensive coal power plants and mountain top removal (MTR) coal mining projects that feed them. MTR destroys rivers, streams and habitats as well as the tops of mountains. We are asking BAC to observe a moratorium on all financing of MTR coal mining and the construction of new coal-burning power plants that emit carbon dioxide.
Trillium and Green Century Capital Management[1] are pioneering the first oil sands resolutions at ConocoPhillips and Chevron, respectively. Oil sands are large tracts of sand and rock material beneath Canada’s dense boreal forests that reportedly hold over a trillion barrels of crude oil. The extraction process requires volumes greater water and energy than ordinary oil drilling, endangering the regions ecology and preventing Canada from meeting its Kyoto Protocol commitments. Our resolutions press the two companies to report on the extensive environmental damage that will result from their expanding oil sands operations, and the ensuing impacts on greenhouse gas (GHG) emissions, water resources, biodiversity and indigenous populations.
In the utility sector, we are pressing Alliant Energy to adopt incentives that will enable it to profit by reducing greenhouse gas emissions by improving its customers’ energy efficiency. Alliant is set to build a new 630-megawatt coal-fired power plant that will emit several million tons of carbon dioxide per year.
For the fifth consecutive year, we are continuing to press Chevron on its pollution legacy in the Ecuadorian rainforest and elsewhere. This year, the New York City pension funds became the lead filer of the resolution we filed last year that asks Chevron’s Board to report on the policies that guide how the company assesses host country laws and regulations, and their ability to adequately protect human health and the environment.
On the topic of environmental health, we are again asking Dow Chemical to establish an independent scientific panel to research and report on the links between Dow pesticides and asthma, in collaboration with the Pesticide Action Network North America.
Working with a shareholder-NGO coalition that formed in response to the massacres in Darfur, Trillium has filed resolutions at JPMorgan Chase, Morgan Stanley and Merrill Lynch, which are among the largest shareholders in foreign oil companies whose business with Sudan finances the government’s mass atrocities in Darfur. We’ve also been in discussion with Citigroup. We’re asking these Wall Street firms to press the foreign oil companies to persuade the Sudanese government to stop obstructing the deployment of UN peacekeeping forces in accordance with UN Resolution 1769. We are also in dialogue with Schlumberger, an oil services firm with operations in Sudan.
Closer to home, Trillium is leading a large coalition of shareholders in a long-running effort to get Home Depot to disclose its Equal Employment Opportunity data (a detail of workforce composition by race, sex and rank). This data disclosure is viewed as an effective incentive to spur companies to develop programs to break glass-ceiling barriers.
Since 1995, Trillium has been a leader in promoting corporate sexual orientation nondiscrimination policies. We have filed resolutions at Expeditors International and Pentair, the only two transportation stocks in our universe who lack such policies, to amend their written equal employment opportunity statement to explicitly prohibit discrimination based on sexual orientation. We are also joining the New York City pension funds in re-filing a sexual orientation policy resolution at ExxonMobil – for the 11th year, but who’s counting? — that asks the company to adopt nondiscrimination protections for “gender identity” as well.**
Shareholders campaigns over the past three years have spurred corporations to adopt a critical piece of governance reform in the form of detailed disclosure of political donations. Relying on publicly available data does not provide a complete picture of political expenditures. Shareholders need complete disclosure to be able to fully evaluate the political use of corporate assets. Ford Motor and General Motors have yet to improve their transparency, prompting our shareholder resolutions asking each company to disclose its political contributions and payments to trade associations and other tax-exempt organizations (We are the lead filer at Ford and are co-filing with Catholic Healthcare West at GM). We are also in dialogue with Dominion Resources and several other companies in this area.
* We often file in coalition with other social investors, and as the word implies, the “lead” filer takes on the organizing role.
[1]Trillium is the sub-advisor for Green Century Capital Management’s Balanced Fund.
** Statutes usually define gender identity as “having or being perceived as having a gender related identity or expression whether or not stereotypically associated with a person’s assigned sex at birth.” Persons in need of such protections often include (but are not limited to) those who are physically transitioning to, or choose to present themselves as, the opposite of their sex at birth.
Citigroup Inc. – Say on Pay
RESOLVED
The stockholders of Citigroup Inc. (“Citigroup”) request the board of directors to adopt a policy that provides shareholders the opportunity at each annual shareholder meeting to vote on an advisory resolution, proposed by management, to ratify the compensation of the named executive officers (“NEOs”) set forth in the proxy statement’s Summary Compensation Table (the “SCT”) and the accompanying narrative disclosure of material factors provided to understand the SCT (but not the Compensation Discussion and Analysis). The proposal submitted to stockholders should make clear that the vote is non-binding and would not affect any compensation paid or awarded to any NEO.
SUPPORTING STATEMENT
In our view, senior executive compensation at Citigroup has not always been structured in ways that best serve stockholders’ interests. For example, in 2006 all five named executive officers were paid more than $78 million in total compensation. Additionally, Robert Rubin’s previous contract guaranteed him a bonus for the years 1999 to 2005.
We believe that existing U.S. corporate governance arrangements, including SEC rules and stock exchange listing standards, do not provide shareholders with sufficient mechanisms for providing input to boards on senior executive compensation. In contrast to U.S. practice, in the United Kingdom, public companies allow shareholders to cast an advisory vote on the “directors’ remuneration report,” which discloses executive compensation. Such a vote isn’t binding, but gives shareholders a clear voice that could help shape senior executive compensation. A recent study of executive compensation in the U.K. before and after the adoption of the shareholder advisory vote there found that CEO cash and total compensation became more sensitive to negative operating performance after the vote’s adoption. (Sudhakar Balachandran et al., “Solving the Executive Compensation Problem through Shareholder Votes? Evidence from the U.K.” (Oct. 2007.)
Currently U.S. stock exchange listing standards require shareholder approval of equity-based compensation plans; those plans, however, set general parameters and accord the compensation committee substantial discretion in making awards and establishing performance thresholds for a particular year. Shareholders do not have any mechanism for providing ongoing feedback on the application of those general standards to individual pay packages.
Similarly, performance criteria submitted for shareholder approval to allow a company to deduct compensation in excess of $1 million are broad and do not constrain compensation committees in setting performance targets for particular senior executives. Withholding votes from compensation committee members who are standing for reelection is a blunt and insufficient instrument for registering dissatisfaction with the way in which the committee has administered compensation plans and policies in the previous year.
Accordingly, we urge Citigroup’s board to allow stockholders to express their opinion about senior executive compensation by establishing an annual referendum process. The results of such a vote could provide Citigroup with useful information about stockholders’ views on the company’s senior executive compensation, as reported each year, and would facilitate constructive dialogue between stockholders and the board.
We urge stockholders to vote for this proposal.
