Will financial crisis give shareholders a say in exec pay?

WASHINGTON — Bank of America Corp. chief Ken Lewis' hasty deal to buy the brokerage firm Merrill Lynch and former Merrill Lynch CEO John Thain's $1,400 wastebasket could pave the way toward giving shareholders some say in executive compensation.

The hefty bonuses given to Merrill Lynch executives, plus a million-dollar office renovation for Thain, are among the latest evidence of excess on Wall Street that have corporate watchdogs and everyday citizens fuming about taxpayer-financed bailouts of the financial industry and calling for more government and shareholder oversight of the financial industry.

Charlotte, N.C.-based BofA's corroding financial situation and continued failures in the business sector are generating new interest in a so-called "say on pay" system that would give stockholders at least a nonbinding vote on corporate executives' compensation packages.

A say-on-pay proposal brought before Bank of America shareholders last year got 44 percent of the vote, but failed. Now Bank of America shareholder Kenneth Steiner has filed a proposal with BofA in an effort to get the bank to join telecommunications provider Verizon and insurer AFLAC in adopting such a system.

"It's disgraceful that executives walk away with millions and millions of dollars, but shareholders like me lost 90 percent of their value and they're laying off tens of thousands of people," Steiner said.

Lewis' total compensation in 2007 was about $17 million, including salary, stock awards and bonuses, but he and other senior bank executives face new restrictions on their pay because the bank has received government assistance.

A small but growing number of companies have adopted such proposals voluntarily. Occidental Petroleum said Monday that it had approved a "say on pay" policy that would give its shareholders a nonbinding vote on executive compensation beginning next year. The company also said it would support legislation establishing clear guidelines and a common standard.

Palo Alto, Calif.-based HP said earlier this month that it would let its shareholders decide whether to conduct an annual nonbinding advisory vote on executive compensation. The company said that it, too, would support legislation that would give stockholders a chance to voice their views on company pay.

Congress, fed up with failed corporate governance that's cost ordinary Americans their jobs, homes and retirement savings, is likely to weigh in as well, with an effort to make shareholder input mandatory.

Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, said Tuesday that "without question" there's momentum for legislation to control executive compensation and "put constraints on risk." Sen. Chris Dodd, D-Conn., the chairman of the Senate Banking Committee, has also pushed for restrictions on executive compensation.

"Executive compensation at this point in time has gotten woefully out of hand," said Lynn Turner, a former chief accountant for the Securities and Exchange Commission. "The time to adopt 'say on pay' type legislation is certainly past due."

Turner said that BofA's acquisition of Merrill Lynch — a deal that was cut in about two days — illustrates the need for more shareholder accountability. He said that Lewis should have protected his company better.

"Doing the acquisition of Merrill Lynch so quickly over a weekend raises serious questions about his business judgment and his ability to recognize the risk associated with a company that was basically on its knees when he acquired it," he said. "Despite all of that, he had extremely limited time to do meaningful due diligence. A smart CEO doesn't do that. . . . And he didn't get protection over losses."

Turner said that part of the blame probably rests with BofA's governing board, as well, though it's unclear what steps the company's directors took.

"Someone should have stopped and put on the brakes — that's the role of the board," he said.

Giving shareholders more say in compensation would make executives more diligent in considering how major decisions might affect investors, Turner said.

"You've got to create greater accountability," he said. "You've got to create a greater fiduciary obligation to the people whose money you are managing. . . . I want their skin in the game and I want them to know the whole hotplate can touch their back side."

"We don't think shareholders should make those decisions," said Bruce Josten, executive vice president for government affairs for the U.S. Chamber of Commerce. "If you look at the people who are filing most of those proxies, it's a group of unions who have run corporate campaigns against the very same companies (and) who in our view have a more political agenda than concern about the bottom line of the company."

(Rick Rothacker of The Charlotte Observer contributed to this report.)

Say on Pay

In a typical "say on pay" policy, a company would spell out its compensation package for named executive officers in its annual proxy statement. Shareholders would have the right to cast an advisory vote, which is nonbinding, on the overall compensation program. Investors would have an up or down vote, rather than a direct say in setting compensation levels for individual executives.

At least 16 companies have adopted such policies, including Aflac, H&R Block, Blockbuster and Verizon.


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