By Joann S. Lublin
With annual meeting season under way, investors across the U.S.
can express their anger about high pay for top corporate
officers.
So-called say-on-pay votes don't give shareholders the power to
cut executive rewards. But boards fear a thumbs' down on the
nonbinding referendum, required since 2011, because the rebuke
suggests deeper investor discontent.
Last week, for instance, BP PLC saw a majority of votes cast
against the oil company's compensation decisions for 2015.
The only thing worse than losing a say-on-pay vote is losing two
votes. Or three.
Several businesses with multiple defeats, such as TCF Financial
Corp., Oracle Corp. and Spectrum Pharmaceuticals Inc., likely will
face shareholder outcries over related pay or corporate governance
issues this year.
In all, 39 companies in the Russell 3000 index have lost
say-on-pay votes at least twice between 2011 and April 15,
according to Willis Towers Watson, a consulting firm. Nine lost the
vote three or more times, its analysis found.
After losing a pay vote, many boards work hard to overcome
investor dissatisfaction by conferring with major stockholders or
altering some pay practices. Those efforts don't always succeed,
however.
At TCF, the bank holding company's investors may reject
executive-pay packages for the third straight year at its annual
meeting next week.
Veteran director Vance Opperman, who chairs the board's
compensation committee, has spent nearly two years making extensive
outreach to big shareholders and overhauling TCF's pay practices.
Yet he is only "cautiously optimistic" the vote will pass this
year.
"Once a company gets in the penalty box over say-on-pay votes,
it's hard to get out," Mr. Opperman said.
Companies with repeated failures often are run by a chief
executive who holds a significant stake. Critics say such firms
typically exhibit a disconnect between the level of executive pay
and corporate performance.
"They are tone-deaf to investors' concerns," said Meredith
Miller, chief governance officer of UAW Retiree Medical Benefits
Trust, which has $61 billion in assets.
Among big U.S. businesses, the least-loved executive pay
packages belong to general contractor Tutor Perini Corp. Support
for the pay of CEO Ronald Tutor and other officers hit a low of
37.6% in 2015, the company's fifth annual defeat. No other Russell
3000 firm has lost its say-on-pay vote for five years.
Investors disliked the fact fellow directors promised Mr. Tutor
a $5 million bonus for succession planning, one of a CEO's regular
job duties. The 75-year-old executive took command of the company
in 2000, owns 18% of its shares and got paid $12.1 million last
year.
A Tutor Perini spokesman declined to comment on the CEO's pay,
but its 2016 proxy states that "Mr. Tutor's value to the Company is
significant."
At TCF, Mr. Opperman met face-to-face with nine of its 10
largest investors after say on pay failed for the first time in
2014. Some expressed discontent about a nearly $8 million equity
grant for longtime CEO William A. Cooper that year.
Though tied to performance, the award of 500,000 restricted
shares "was outsized," Mr. Opperman admitted. "We had not done a
good job at all" in explaining that the award sought to encourage
Mr. Cooper to remain CEO until early 2016 and chairman until early
2018, he said. "You're not going to find a lot of Bill
Coopers."
Following investors' 2014 vote, TCF made numerous changes, such
as a long-term equity plan tied to shareholder returns.
Yet say on pay garnered even lower support last year.
Shareholders approved a resolution favoring proxy access, which
gives investors greater clout by allowing them to put their own
board candidates on official ballots. Once more, Mr. Opperman met
with nine major investors and the board further tweaked pay
practices.
TCF directors embraced proxy access last October. And in the
2016 proxy, they finally reported that Mr. Cooper's 2014 grant was
a four-year award.
Other boards appear less open to shareholders' compensation
concerns. Oracle investors have voted against sizable pay packages
for top executives of the business software developer four times.
Co-CEOs Safra Catz and Mark Hurd made about $53.2 million each
during fiscal 2015.
Shortly before Oracle's annual meeting last November,
shareholders warned two directors that the pay vote would fail a
fourth time. Directors replied that Ms. Catz and Mr. Hurd were paid
this well because "the co-CEOs are being recruited all the time,"
according to someone familiar with the situation.
Shareholders passed a proxy access resolution, partly because
proponents cited Oracle's pay-vote flops. Nathan Cummings
Foundation, the lead sponsor, will revive the proxy access proposal
this year unless Cummings reaches agreement with Oracle before its
May 25 deadline for submitting resolutions, said Laura Campos,
director of shareholder activities. An Oracle spokeswoman declined
to comment.
Directors of certain companies with multiple say-on-pay defeats
have encountered re-election challenges, though few -- if any --
have lost their seats.
In 2015, Institutional Shareholder Services urged Spectrum
investors to oppose all seven directors after two years of rejected
pay votes. The proxy adviser previously questioned the biotech
company for not tying equity awards to performance.
Three compensation committee members received less than 50%
support -- but kept their seats due to Spectrum's board-election
rules. Raymond Cohen, the narrowly re-elected chairman of the pay
panel, said he considers his lightning-rod role "a thankless
job."
Spectrum directors are crafting a new compensation program, Mr.
Cohen said. "But it takes a little bit of time [because] you want
to be thoughtful."
Write to Joann S. Lublin at joann.lublin@wsj.com
(END) Dow Jones Newswires
April 19, 2016 19:22 ET (23:22 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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