With gloomy prospects facing nearly every public company, shareholders are sure to be feistier than ever this proxy season. Once again, the center-stage issue will be executive compensation. "Shareholders want a cleanup in the compensation aisle," quips Patrick McGurn, special counsel to proxy advisory firm RiskMetrics Group.
This year, some 100 companies will face votes at their annual meetings on say-on-pay proposals, compared with 76 similar proposals in 2008. Such proposals seek to give shareholders an advisory vote on executive-pay packages. (A provision in the Treasury Department's Troubled Asset Relief Program mandates that the 400 recipients of TARP funds adopt say-on-pay.)
Outrage over lavish pay has also spurred a slew of proposals that seek to tie compensation to performance. The American Federation of State, County, and Municipal Employees (AFSCME) is asking Charles Schwab and JPMorgan Chase to adopt "bonus banking," which requires that executive bonuses be paid out only if the company maintains positive performance for a specific period of time. Macy's, Moody's, AIG, and others also face proposals from AFSCME that would require executives to hold on to a percentage of their company shares until retirement.
Other shareholder proposals are expected to address making boards more independent; environmental and social issues, such as global warming and diversity, are also big this year. With many companies in survival mode, do the proposals face an uphill battle? Experts say just the opposite. "The attitude of most companies would be to think about recovery rather than improving their governance or social or environmental record," says Paul Hodgson, research associate, executive and director compensation, for The Corporate Library. "But shareholders also see companies in a relatively weakened state and seek to take advantage of that position." Adds McGurn: "The recession doesn't give a free pass, and investors expect companies to keep an eye on the ball these days."