January 29, 2009
Intel Agrees to Shareowner Vote on Executive Compensation
by Robert Kropp
Endorsement adds another corporation to a growing number opting for engagement in a year when issue
commands public attention.
In response to a shareowner proposal, Intelís Board of Directors endorsed the implementation of an
Advisory Vote on Executive Compensation for its 2009 shareowner meeting.
The sponsors of the resolution, led by Walden Asset Management, a Boston
investment management firm, then withdrew the resolution in order to facilitate further engagement.
"We've been in contact with Intel on this issue for years now, and this year we filed a
shareowner resolution," said Tim Smith, Senior Vice President at Walden. "The Board got back to us
and said they had agreed to put the executive compensation proposal into effect in 2009."
Chuck Mulloy, corporate spokesman for Intel, said, "In our view, the proxy proposal on
executive compensation is a reasonable thing to do. So we took the suggestion and will go forward
with the advisory vote. There's no good reason to wait for Congressional legislation to have this
kind of dialogue on such an important issue."
Congress is likely to pass legislation to
mandate annual non-binding shareowner votes on executive compensation, and according to Smith, the
SEC may promulgate rules on compensation without waiting for legislation. In her testimony before
the Senate Banking Committee, Mary Schapiro, the new SEC chair, declared her support for shareowner
votes on executive compensation.
"There certainly is more openness in boardrooms regarding
this issue, for a number of reasons. But the floodgates have not yet opened. Lots of companies are
fighting back, rather vigorously," Smith said. "However, there is more engagement on this issue
this year than ever before."
The Troubled Assets Relief Program (TARP) require recipients
of its funds to comply with compensation guidelines that include prohibitions on unnecessarily
risky incentives and golden parachute payments, the elimination of tax deductions for salary over
$500,000, and the return of bonus and incentive pay based on materially inaccurate information.
Shareowner advocates with stakes in the financial companies benefiting from TARP have
introduced proposals that contend that TARP guidelines do not go far enough. Other advocates want
companies not covered by TARP to adopt its guidelines for executive compensation.
Anticipating that the economic crisis has focused investor and regulatory attention on
executive compensation, RiskMetrics
Group, a provider of risk management and corporate governance services, devoted much of its
2009 proxy voting updates to the issue. Its policy guidelines on executive compensation have been
expanded to align with the provisions of the US Treasuryís rules under TARP.
RiskMetrics an influential adviser on proxy voting for institutional investors, the Harvard Law School Corporate
Governance Blog advised corporate management to reassess their compensation policies in advance
of the 2009 proxy season.
Shareowner advocates have submitted executive compensation
resolutions at about 100 corporations in 2009.
The American Federation of State, County and Municipal Employees
(AFSCME), an institutional shareowner with more than $850 million in assets, has submitted 36
shareholder proxy proposals in 2009, many of which seek advisory shareowner votes on executive
John Keenan, strategic analyst for corporate governance and investment
policy at AFSCME, told SocialFunds.com, "Ingersoll-Rand has agreed to a shareholder advisory vote
relating to executive compensation in 2009. In addition, we have proposed new initiatives relating
to bonus banking, holding equity shares, and golden coffins."
As an example of the
practice of bonus banking targeted by some shareowner proposals, Keenan pointed to the case of Stan
O'Neal, former CEO of Merrill Lynch. Fired after the Wall Street firm took an $8.4 billion
write-down of securities backed by subprime mortgages, O'Neal walked away with a $250 million
In support of the shareowner proposal to require departing executives to retain
their equity holdings for at least two years, Keenan used the example of Angelo Mozilo of
Countrywide, who faced investigations by the SEC and federal prosecutors into his exercises of
stock options that allowed him to sell $130.6 million dollars worth of stock as Countrywide's
fortunes worsened and it laid off 12,000 workers.
The "golden coffin" payout to
executives, in which severance packages, vested shares, salaries, bonuses, and pensions continue to
be paid even after they die, represents the ultimate disconnect between executive pay and
performance. The Amalgamated Bank,
the only fully union-owned US bank still in operation, submitted a shareowner proposal urging The
Shaw Group to seek shareowner approval for executive agreements that award unearned salary,
bonuses, and other compensation to senior executives upon their death.
Upon the death of
Chair and CEO J.M. Bernhard, The Shaw Group would pay his estate a lump sum cash payment comprised
of unearned salary, incentive bonus, and full vesting of outstanding equity awards valued at over
$20 million. In addition, Bernhard would receive a retention payment currently valued at
approximately $18 million contingent upon his agreement to not compete with the company for a
period of two years after his death.
The Amalgamated Bank's proposal on "golden coffin"
payouts passed with 67% of shareowners' votes.
The record number of shareowner proposals
filed in 2009 suggests that support for limits on executive compensation is growing in influential
sectors of society. As Congress contemplates legislation, the SEC prepares to reclaim its mandate
to protect investors, and the Obama administration indicates its support for the issue, it is
likely that more corporations will follow Intel's lead and engage with shareowner advocates on the
The floodgates may not have opened yet, as Tim Smith of Walden was quick to point
out. That a company as high-profile as Apple continues to oppose AFSCME's proposal on executive
compensation, even after the proposal won a majority of votes at the company's 2008 annual
shareowner meeting, indicates that work remains to be done before executive compensation is aligned
with social and fiscal reality. But 2009 appears to be the year in which an issue of importance to
socially responsible investors for years will finally gain new levels of success.
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