Say on Pay 2010

A day in the life of Doug Chia

Johnson & Johnson’s Douglas Chia, chair of the corporate secretaries focus section here on Say on Pay 2009, represented the Society of Corporate Secretaries and Governance Professionals at a special session on proxy reform held last night at Baruch College for the National Investor Relations Institute’s New York chapter.

• Drove to work listening to a podcast by a compensation consultant on say on pay and heightened compensation disclosure.
• Arrived at the office and reviewed J&J’s draft 10-Q, which is to be filed next week.
• Talked to J&J’s IRO about a potential disclosure issue around the 10-Q.
• Over lunch, listened to a webinar by another compensation consultant.
• Began the afternoon putting finishing touches on a comment letter on proxy access to be sent to the SEC by a group of companies.
• Back in his car, talked on the phone to an internal group about a request from a UK-based socially responsible investor for additional disclosure.
• Still on the road, phoned Washington contacts about Barney Frank’s say-on-pay bill, now in markup and headed for a vote Thursday or Friday.
• At NIRI-NY’s panel session, told how corporate secretaries won’t be goofing off over the next several months. He expects many more similar days packed with say on pay, compensation disclosure and other proxy season priorities. ‘Double my pay, please!’
• On his way home, was planning to think about how to reach out to retail shareholders –  without the broker vote, there will be a 25 percent to 30 percent block of shareholders voting on their own next year.

Neil Stewart, executive editor, IR magazine

Comments on Harvard Business Review's "How to Fix Executive Pay"

The Harvard Business Review is running an online debate entitled "How to Fix Executive Pay."  I encourage everyone to follow this HBR debate as they have an all-star team of contributors. A recent post by Anne Sheehan, director of corporate governance for the California State Teachers’ Retirement System (CalSTRS), suggests part of the the solution is to "Give Shareholders Say on Pay." I've posted my response to Ms. Sheehan's piece at the HBR site and now reprint it here:

This piece starts out with the bold assertion, "Executive pay is broken." The title of the piece is "Give Shareholders Say on Pay." Thus, one would expect some kind of argument to follow that would clearly lay out why giving shareholders a "say on pay" will fix the broken executive pay. Finding none, this piece becomes a repeat of the many other articles, letters, blogs, tweets, speeches and shareholder proposals claiming that say on pay will actually mean something to someone. The recent mandatory say on pay pilot program for TARP companies shows that say on pay is practically meaningless. To date, out of all of the TARP companies that have given their shareholders a say on pay, not one of them has "lost" the vote. That's right, the shareholders of every TARP company so far have "approved" executive pay via the say on pay vote by votes of over 50% at each of these companies. And these are the companies that brought our financial system and the global economy to its knees. The votes were cast on the pay that was given out in the previous fiscal year, when all of this was happening. So, for all of the talk about shareholders not standing for executive compensation practices that incentivized excessive risk taking, we're seeing contrary results, and that's with 20-20 hindsight! One would have expected the say on pay vote to be overwhelmingly negative at places like Citi and Bank of America, but, for whatever strange reason, they weren't. I'm not saying that I agree with any of these votes or approve of the compensation policies, practices or amounts at any of these financial institutions, but apparently the shareholders, when given the opportunity, have not collectively raised a major objection. If that's the case, then what is the point of say on pay? If this is what the votes look like right after the meltdown, why does anyone think that say on pay is going to fix, or even slightly change, anything? I've got to think that the people who saw say on pay as the solution, or even part of the solution, to the executive pay conundrum are disappointed with what we are seeing in this initial experiment. For all of the time we have spent arguing about it, it ended up being a complete dud. Time to move on and work together to create something that will actually be useful to somebody (other than perhaps a politician).

Doug Chia, senior counsel and assistant corporate secretary, Johnson & Johnson

Comments from Andrew Clearfield, president, Investment Initiatives, LLC

The following comments on "Say on Pay" are from Andrew Clearfield, president, Investment Initiatives, LLC.

What is there to say? "Say on pay" is coming, whether you want it to or not. The powers that be in Washington are all in favor of it. It is also true that there have been wretched excesses at many quoted companies, and that most of the CEOs in question are in no way entrepreneurs, who risked their own futures in order to create the companies in question. Investors are angry, having seen the values of their holdings decline from 25% to 75% and more, and the man in the street can't understand why any executive should make more than he does, anyway. CEOs can at least take heart from the fact that the vote is entirely advisory – as is not the case in the Netherlands or in Sweden. Most institutional holders, who will constitute the majority of votes at almost all of the larger companies, are not opposed to the principle that those in charge of an enterprise be well paid for their labors. But – it's gonna happen, and all that will be achieved by fighting it is that some managers will become branded as anti-investor, some directors will be systematically opposed by activists, and it will be that much easier for the Administration and Congressional Democrats to brand Big Business as Public Enemy No. 1.

Comments from Alan Nadel, managing director, Strategic Apex Group LLC

The following comments on say on pay are from Alan Nadel, managing director, Strategic Apex Group LLC.

Many of us would be delighted if "Say on Pay" is all we get.  Based on a meeting I had yesterday [April 15, 2009] with a senior Senate staffer, it is very possible that we will be seeing new rules that are far more onerous than a simple shareholder advisory vote on executive compensation.

Distinctions Without Differences

The big news in the say on pay (SOP) world yesterday was the Wall Street Journal headline, ‘Say on Pay Wins at Pfizer, Loses at J&J.’ It even was news in the health care world, with the Wall Street Journal’s Health Blog posting, ‘Pfizer Holders Want Say on Exec Pay; J&J Holders, Not So Much.’ The blog post by Jacob Goldstein began, ‘Both Pfizer and Johnson & Johnson held their annual meetings today, which makes for an interesting study in contrasts. Pfizer shareholders voted to give themselves an ‘advisory vote’ on executive compensation, while J&J shareholders voted down a similar proposal, notes Pete Loftus of Dow Jones Newswires. Both votes were close: 52% in favor at Pfizer, versus 46% in favor at J&J.’ No offense, but I would not call 52% versus 46% a ‘study in contrasts.’ If the vote had been 25% at one place and 75% at the other, that would be something to analyze. This, however, is not. Instead, it is a distinction without a difference.

What could have accounted for the 6% spread? Let me count the ways:

Inviting comments on Chia’s “10 Things to Keep in Mind”

The list of “10 Things to Keep in Mind” below is offered for your consideration and comment by Douglas K. Chia, Senior Counsel & Assistant Corporate Secretary of Johnson & Johnson and a member of the Forum’s Program Panel for “Say on Pay.”   (It should be noted that Mr. Chia is of course presenting his own personal views and not the positions of Johnson & Johnson.)

It's important for people who actually understand the processes and decision-making requirements to think about these issues while “Say on Pay” is being tested this year – and it's also important that you tell each other what you think.