Investor push on CEO pay sputtering

Shareholders are demanding a voice on runaway executive pay packages, but the tallies so far this proxy season don't reflect that.

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NEW YORK (CNNMoney.com) -- Shareholders have been up arms lately about huge CEO paychecks, but so far that fervor hasn't translated into much action.

Based on early tallies, proposals aimed at giving stockholders a vote on executive pay - the "say on pay" movement - have failed to win widespread support in recent weeks.

In fact, "say on pay" proposals have won majority support at just two firms - Apple (AAPL, Fortune 500) and Lexmark International (LXK, Fortune 500). That translates to one out of every six times it has come up for a shareholder vote, according to the advisory firm RiskMetrics.

"Going into this season there seemed to be a lot of momentum, but the shareholder community appears a bit divided on the issue," said Shirley Westcott, managing director of policy at the advisory firm Proxy Governance.

"Say on pay" has been the rallying cry of frustrated shareholders this year, after a number of top executives collected eye-popping compensation or severance packages even as their companies and investors lost billions.

And when the presidential candidates took up this issue earlier this year, it appeared as if the issue would only gain further traction.

But "say on pay's" track record at the recent round of annual shareholder meetings has not been good.

Even though investors last week blasted executives at the annual meetings of Citigroup (C, Fortune 500) and Wachovia (WB, Fortune 500), "say on pay" proposals at both companies won 20% fewer votes than they did a year ago, according to RiskMetrics.

"You would think shareholders being so angry, it would go up," said Pat McGurn, special counsel at the proxy advisory based in Rockville, Md.

Other large financial institutions have also had success beating back "say on pay" measures this proxy season. Shareholder proposals on the issue failed not only at Merrill Lynch (MER, Fortune 500) but also at Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500), all of which are well known for paying their executives handsomely.

The problem with pay

"Say on pay" first gained traction overseas after it was made into law in countries such as the United Kingdom and Australia.

American shareholders initially embraced the concept when it was introduced by shareholder activists a few years ago, but it still remains in its infancy stage in the United States.

This year only a handful of companies including Verizon (VZ, Fortune 500), Blockbuster (BBI, Fortune 500), Par Pharmaceutical Companies (PRX) and the health insurer Aflac Inc. (AFL, Fortune 500) are letting the issue to go to a shareholder vote.

But determining why "say on pay" has failed to garner broader support has left some experts scratching their heads.

Richard Ferlauto, director of corporate governance and pension investment at the American Federation of State, County and Municipal Employees, blames the rise of the e-proxy this season for posing a hurdle to "say on pay." The federation, one of the nation's largest labor unions, is a leader in the rights of shareholders.

More companies are requiring shareholders to vote online instead of through traditional paper ballots, muting the voice of many "mom and pop" investors accustomed to mailing in their votes, said Ferlauto.

Others argue there's a lack of consensus on the issue because of the diverse interests of shareholder groups such as public pensions and hedge funds.

"There is a lot of disparate thinking on the issue," said Proxy Governance's Westcott. "Shareholders come in all different stripes."

An issue for Washington?

Some corporate governance experts believe that legislative action might be needed before "say on pay" gains traction.

"This rocket is still on the launch pad at this time," said RiskMetrics' McGurn. "I think it does put all eyes on Washington now."

If that is the case, there are plenty of promising signs. Last year, Sen. Barack Obama, D-Ill., introduced a bill that would require companies to allow nonbinding shareholder votes on executive compensation packages. The presidential candidate's proposal would not cap or limit CEO pay and a board of directors could still approve an executive's pay package, even if shareholders disagreed.

What's more, both Obama's Democratic rival Sen. Hillary Clinton, D-N.Y., and Republic presidential candidate Sen. John McCain, R-Ariz., have endorsed the concept.

With the proxy season only halfway over, "say on pay" could find greater support, but for now, say experts, handsome executive pay packages look well insulated.