Companies Seek Shareholder Input on Pay Practices
Amid Anger Over Compensation Packages, Executives and Directors
Look for New Ways to Appease Investors
By Phred Dvorak
The Wall Street Journal
Monday, April 6, 2009
As outrage grows over executive-pay practices, biotechnology
firm Amgen Inc. is taking the unusual step of asking
shareholders what they think of its compensation plan.
In its March 26 proxy, Amgen,
Thousand Oaks, Calif.,
directed shareholders to a 10-question online survey.
Queries include whether the plan is based on performance and
whether the performance goals are clearly disclosed and
understandable. Amgen says it will post a summary of the
responses on its Web site after its May 6 shareholder meeting.
Amgen's survey, one of the first of its kind, comes as
executives and directors seek new ways to reach out to restless
shareholders. Drug maker Schering-Plough Corp. had planned
a similar survey before it agreed last month to be acquired by
Merck & Co.; the company declines to comment on whether it
will still conduct the survey. Prudential Financial Inc.
this year created a link on its Web site so investors could
comment on its compensation plan.
Several other companies are likely to conduct shareholder polls
during the next few months, says corporate-governance monitor
Gary Lutin, who oversees a forum about executive pay that
includes investors, corporate executives and regulators.
Directors at other companies, such as Home Depot Inc., meet with
shareholders individually or in groups to hear their concerns.
Such meetings used to be rare.
Edward Durkin, a veteran activist investor with the United
Brotherhood of Carpenters and Joiners, says companies are much
more responsive than a few years ago. This year, he says,
officials of several firms called him to discuss pay practices
before he could call them; a few put CEOs and directors on
the phone, he says.
These outreach efforts are taking on more importance amid rising
public anger over executive pay and new government restrictions
on compensation. Shareholders at roughly 400 companies
that accepted federal aid will conduct advisory votes this year
on those companies' compensation plans. Congress later
this year may require such "say-on-pay" votes at all companies.
The results are not binding, but can pressure boards to alter
In the U.K.,
which has required such votes since 2003, shareholders of Royal
Bank of Scotland Group PLC voted by a nine-to-one margin Friday
against the bank's 2008 compensation package, which included a
[pound ]693,000 ($1 million) annual pension for former Chief
Executive Sir Fred Goodwin. The bank's chairman later said
Sir Fred is considering reducing the pension or donating some of
it to charity.
Polling on Pay
Some companies are asking shareholders to comment on their
pay plans. Here are edited versions of select questions
from a poll by Amgen Inc.
- Is the compensation plan performance-based?
- Is the plan clearly linked to the company's business
- Is the plan customized to suit the company's size,
industry and performance?
Sources: Amgen, TIAA-CREF
Investor surveys can give boards detailed information on what
parts of pay plans investors like or don't like, and let
directors craft specific questions, says an executive at a
company that's considering a poll.
Amgen's survey questions were written by pension-fund manager
TIAA-CREF to help it evaluate pay plans of companies in which it
invests. Some of those companies asked TIAA-CREF for
pointers on how investors view their compensation. The
firm, which manages around $363 billion in assets, made its
checklist public last year, says Hye-Won Choi, head of corporate
governance. "It's a way to get companies to pay attention
to the things shareholders care about most," Ms. Choi says.
Amgen hasn't received any holder complaints about executive pay,
says spokesman David Polk. Amgen CEO Kevin Sharer received
total direct compensation of $13.2 million in 2008, including
salary, bonus and the value of equity grants, according to an
analysis by Hay Group, a
Amgen invited shareholders to give online feedback on its
executive-pay practices last year, but only a handful responded,
says Mr. Polk. Responses ranged from thoughts on
appropriate levels of compensation to comments on incentive pay,
This year, Amgen hopes the survey will elicit more specific
replies, although shareholders can still submit free-form
comments. The company urged its 30 biggest shareholders to
take part in the survey, Mr. Polk says.
Amgen provides its own answers to the survey questions,
including detailed explanations and references to its proxy.
In response to a question of whether Amgen's pay plan is
"clearly linked to the company's business strategy," the company
says annual cash-incentive awards for 2008 were based on
revenue, earnings per share and progress with its drug pipeline.
Long-term equity grants are tied to Amgen's share performance,
the company says.
Write to Phred Dvorak at