Anger rising over CEO pay
Shareholder proposals on curbing management pay hit record, tracking group says.
April 22, 2003: 9:56 PM EDT
By Jake Ulick, CNN/MOney Staff Writer

NEW YORK (CNN/Money) - Outrage over rising executive pay has led to a record number of shareholder requests to curb CEO compensation.

That's the conclusion from the Investor Responsibility Research Center, which Monday said 1,009 shareholder resolutions have been filed with the Securities and Exchange Commission this year, up 26 percent from 802 for all of last year. Of that figure, 319 involve proposals to change how company management is paid, a 200 percent increase over the 106 such proposals last year.

The focus on CEOs' pay follows a third year of sinking stock prices that have damaged retirement prospects for millions of Americans. Employers continue to cut jobs, leading to rising claims for unemployment benefits. And a series of accounting scandals at Enron, WorldCom and elsewhere increased calls to limit stock options, which allow for the purchase of shares at below-market prices.

Carol Bowie, director of governance research services at the Washington, D.C.-based Investor Responsibility Research Center, said that this year's proposals frequently ask that stock options be treated as an expense, a development that would likely cut these grants. Investors are also asking that CEO pay be tied to performance standards.

"Executive compensation is the big issue of the year," Bowie said.

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The shareholder activism has accompanied a series of accounting frauds that continued this year with HealthSouth, the hospital operator accused of overstating profits by at least $1.4 billion since 1999.

The shareholder resolutions, mostly from public and private pension funds and unions, won't always make it to proxy vote. That's because numerous organizations that hold billion of dollars in assets and speak for shareholder often negotiate changes with the companies. Other proposals are voided by the SEC.

Bowie said that no company has become more of a target than General Electric (GE: Research, Estimates), the subject of 26 resolutions.

Among the proposals, California Public Employees' Retirement System (CalPERS), the nation's largest public pension fund, asked GE shareholders to vote for a resolution demanding the company use performance-based stock options, rather than regular options, as a form of compensation.

GE CEO Jeffrey Immelt was paid a $3 million base salary and took home a $3.9 million bonus last year, when he was granted 1 million options.

The AFL-CIO has been active. At the US Bancorp (USB: Research, Estimates) meeting last week, an AFL-CIO resolution calling for board members to get shareholder approval before instituting any extraordinary executive retirement plans won 51 percent of the vote, according to the union whose sponsored pension and benefit funds total about $400 billion.

Another resolution, backed by the United Brotherhood of Carpenters Pension Fund, calling for the bank to report stock options as expenses in its annual income statements won 60 percent of the vote, the labor union said.

An AFL-CIO spokeswoman, Suzanne Ffolkes, said some of its resolutions also attempt to control CEO pension packages. Others seek to have executives hold their stock options for a period of time after they have been exercised, as opposed to selling the stock immediately.

"We have filed a record [number of resolutions]," Ffolkes said.

More than anything else, the union is focused on stock options, which the AFL-CIO says encouraged CEOs to inflate profits.

"Executive compensation abuses have predated every company that has had a corporate accounting scandal," said Brandon Reese, research analyst with the AFL-CIO's office of investment.

Proponents of options say they are an important tool for recruiting employees. Companies includingIntel (INTC: Research, Estimates), which do not want to expense options, contend that expensing an options grant distorts results because the formula for determining their value involves a series of accounting abstractions.

Wells Fargo (WFC: Research, Estimates) investors vote Tuesday on the first-ever shareholder proposal to ban stock options, according to the AFL-CIO, which sponsored the resolution. Reese, the research analyst with the AFL-CIO's office of investment, said the measure is not expected to pass.

The moves come as compensation is rising. A study from Equilar, a research firm, found that median salaries among CEOs at large companies rose 6.1 percent last year and the median bonus gained 20.6 percent. Total compensation to the CEOs of the largest U.S. companies fell 8.7 percent because of the drop in the value of stock options, Equilar said.  Top of page

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