Verizon
At Verizons annual meeting in Louisville, Ky., shareholders will decide whether they approve the pay package for the CEO and other top executives at the phone company.
Although the vote is merely advisory, and the company isnt obligated to do anything in response to a “no” vote, a rejection by shareholders would be an embarrassing slap on the wrist that could sway the board to action. Failure to heed shareholders will on pay could bring unwanted attention on the compensation and prompt calls to oust board members.
New York-based Verizon is one of 15 companies adopting their own provisions for letting shareholders vote on pay this year. Some financial companies that have received money from the Troubled Assets Relief Program, or TARP, also will be required to conduct similar votes.
Rich Ferlauto, director of corporate governance and pension investments at the American Federation of State, County and Municipal Employees, or AFSCME, believes Congress will likely pass legislation this year to force all companies to conduct such votes. President Barack Obama sponsored a bill to that effect when he was a senator.
Verizon CEO Ivan Seidenbergs pay package is hardly unusual, and the company has been posting consistent profits, making the possibility of a “no” vote a long shot.
But his pay has been the target of a campaign by the Association of BellTel Retirees, which claims 100,000 members and has a history of marshaling shareholder votes.
That makes this case an example of what happens when a company faces well-organized and motivated shareholders. Already, Verizon has eliminated some of the pay practices its shareholders deemed objectionable.
“I think its a tool that shareholders will have to learn to use,” Ferlauto said. “Particularly the mutual funds will have to step up their game and to get more actively involved in analyzing what appropriate pay is.”
Seidenbergs compensation was valued at $20.2 million in 2008, essentially the same as in the previous two years, according to calculations by The Associated Press, which factor in salary, bonus, incentives, perks, above-market returns on deferred compensation and the estimated value of stock options and awards granted during the year.
At face value, he is the best-paid CEO in the U.S. telecommunications industry, though much of his compensation is in stock that has fallen in value since it was granted.
The company introduced the “say on pay” provision after the BellTel Retirees group got a slim majority for its proposal to institute such a provision at the 2007 annual meeting.
The group estimates it commands at most 5 percent of Verizons shares. To try to get a majority for the “no” position, the association has been meeting with shareholders.
RiskMetrics Group, which advises shareholders on how to vote, supports Verizon in urging a “yes” vote, giving the company a large advantage. The habit of large institutional investors to vote with the company further boosts its chances of getting a majority “yes” vote.
Ferlauto also believes early say-on-pay adopters like Verizon have built some shareholder goodwill that makes them less likely to get “no” votes.
The real drama may come when straggling companies are forced by legislation to give their own shareholders a voice, he said.
RiskMetrics recommended a “no” vote at Motorola Inc., which gave investors their first “say on pay” vote on Monday, but “yes” still prevailed, with 64 percent of the vote. Motorola co-CEO Sanjay Jha was the second-highest paid executive at an S&P 500 company last year, with a compensation package valued by the AP at $104.4 million. However, the ailing companys prospects have to improve considerably before Jha can actually cash out that money, most of which is in the form of stock options.
Intel Corp. is another high-profile company providing a say on pay, at its annual meeting May 20.