Executive Compensation Panel Delves into the Post-Say on Pay World, Shares Experiences with Activist Investors

September 12, 2014

Following the 2014 proxy season in which greater pressure from activist investors supplanted say on pay as the top executive pay news story, the panel focused on the next executive compensation leverage points after say on pay.  The discussion was led by Richard R. Floersch, Chair of the Association's Center On Executive Compensation and Executive Vice President and Chief Human Resources Officer, McDonald's Corporation.  The stage was set by Center Chief Executive Officer, Charlie Tharp, who presented an overview of the increase in shareholder proposals and other pressure points since 2011, and noted that while “proponents want a chance to be heard, in many cases, companies have been successful in getting proponents to withdraw resolutions after a meeting.”

  • Launching the panel discussion and reinforcing the emergence of activist investor engagement as a new leverage point, Mr. Floersch shared his experiences at McDonald's this year in dealing with union-sponsored pension fund CtW Investment Group, which sought to rally investor support against the company’s say on pay vote.  After engaging with investors and ISS, Mr. Floersch reported that over 94% of McDonald's shareholders supported the company's say on pay proposal.  In closing, Mr. Floersch noted that "having a compensation committee chair that can go chapter and verse into your company's pay programs is vital in these types of situations." 
  • Mark James, Senior Vice President, Human Resources, Procurement and Communications for Honeywell International shared his experiences in dealing with the AFL-CIO which, although owning only a small number of shares, submitted shareholder proposals in both 2013 and 2014 seeking to require Honeywell to adopt a pro-rata vesting provision for unvested equity awards in its change in control policy.  Mr. James detailed the subsequent engagement with Honeywell's top investors which helped the company frame a moderate change to its programs that ensured that the proposal did not receive substantial support this year.
  • George Paulin, Chairman and Chief Executive Officer of consultancy Frederic W. Cook & Co., gave his perspective on fundamental approaches when a company runs into an activist investor, noting that "whatever you do, you should never let the compensation committee be surprised."  With regard to making decisions concerning executive pay plans, Mr. Paulin stated that it is of the utmost importance to start with a business purpose as the rationale for any underlying changes, rather than making the changes first and then trying to fit a business purpose to them.  He noted that having this business rationale as a basis for decision-making is a key aspect of successful shareholder engagement.
The panel concluded with Center CEO Tharp forecasting that the next hot button issues in the executive compensation field are likely to relate to the quantum of executive pay and the pay ratio, as well as the approval of stock plans and increasing focus on director votes.