Investor fury over exorbitant executive paychecks has boiled over in the past year with each new revelation about CEOs raking it in while their shareholders take it on the chin. Now, a battle royal is about to begin. As Corporate America's annual-meeting season gets under way in March, stockholders will vote on some 200 proxy resolutions aimed at curbing CEO pay.
Sponsored largely by union pension funds, which control or influence $1.5 trillion worth of stock, the resolutions range from expensing executive stock options or indexing them to performance benchmarks to curtailing lucrative pension extras and golden parachutes (table). Such demands are likely to provoke heated encounters at General Electric (GE
), Wal-Mart (WMT
), Yahoo! (YHOO
), and dozens of other major companies. "Anger levels [among stockholders] are way off the charts," warns Patrick McGurn, a vice-president at Institutional Shareholder Services Inc., which advises pension and mutual funds on how to vote their proxies.
Already, some companies are responding in the hopes of heading off a showdown. More than a dozen, including American Express Co. (AXP
) and Coca-Cola Co. (KO
), are in talks with labor pension funds about compensation curbs of one sort or another. A few companies have already made some concessions: After talks with major shareholders and the AFL-CIO, AmEx recently agreed to reduce options grants to senior managers and substitute restricted stock for options given to middle managers.
But many companies are resisting labor's demands. GE is telling shareholders to vote against a sheet metal workers union resolution to index executive options because "stock options, which generally don't vest for three to five years, are inherently linked to performance," says spokesman Gary Sheffer.
Plenty of companies face a stiff fight, particularly from those insisting that they deduct the value of stock options from their bottom lines. Since last summer, more than 170 companies have said they will start treating options as an expense. This ups the pressure on the 89 companies with which labor has filed proxy resolutions pushing the idea, such as Caterpillar Inc. (CAT
) and Eastman Kodak Co. (EK
) Labor also hopes to build momentum for the Financial Accounting Standards Board to make expensing of options mandatory. Already, FASB's initial moves in that direction have provoked angry corporate counterattacks.
Either way, expensing options isn't nearly enough to satisfy aggrieved shareholders. Just look at what's going on at Coke. The beverage giant won kudos last July when it became one of the first companies to adopt expensing. But pension funds saw that as the beginning of the battle, not the end. The Teamsters union, a Coca-Cola stockholder, has submitted a resolution to require the exercise price of senior executives' options to be linked to a peer-group stock-performance index. The AFL-CIO has chimed in with a proposal calling on Coke to get shareholder approval for special pension benefits for top execs. So far, Coke is opposing both resolutions, says spokeswoman Kari Bjorhus, but performance-based options "are being considered." However, in January, Coke ended a supplemental pension plan that gives key executives 10 years of unearned service credit. "If you can realign executive pay," says William Patterson, head of the AFL-CIO's Office of Investments, "it's the predicate to corporate governance reforms."
With average CEO pay more than 400 times what the average hourly worker takes home--up from 42 times in 1980--labor has a long way to go. Still, with every disappointing 401(k) statement, labor's pickax gets a little more muscle behind it.
By Amy Borrus in Washington, with Dean Foust in Atlanta
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