Four of the nation”™s largest companies, representing nearly $109 billion in total revenues, have settled shareholder resolutions that sought detailed disclosures on executive pay-settings, state Treasurer Denise L. Nappier said.
“Large gaps in pay between the chief executive officer and other (named executive officers) NEOs may signal that the CEO is earning an excessively large share of the compensation paid to top executives or that the pay is not tied to performance and this is rightly of concern to shareholders,” Nappier said. “It may also be a red flag for inadequate succession planning, as wide pay differentials sometimes reveal significant differences in contribution and ability and this, too, is troubling.”
Connecticut”™s announcement comes as the Securities and Exchange Commission evaluates responses to letters it sent to roughly 300 public companies requesting increased disclosure of executive compensation practices.
Nappier, who oversees the $26 billion Connecticut Retirement Plans and Trust Funds, is a leading advocate of corporate executive compensation that reflects company performance. Because of shareholder proposals filed on behalf of the organization this proxy season, retailer Abercrombie & Fitch and supermarket conglomerate Supervalu, Inc. have agreed to disclose information relating to gaps in pay among top executives.
Shareholder agreement was also reached with printer R.R. Donnelley & Sons and the construction equipment manufacturer Caterpillar Inc. Both companies will disclose the relationship between compensation consultants engaged by their boards of directors and any additional work done for management.
The Connecticut Retirement Plans and Trust Funds was the primary filer for all four resolutions, and was joined by the AFL-CIO Reserve Fund and the New York State Common Retirement Fund on the Caterpillar proposal.
Each company agreed to comply with a series of policies and disclosures relating to executive pay levels, prompting Nappier to withdraw shareholder proposals that would have otherwise been considered at the companies”™ annual meetings this spring.
“Caterpillar has made great strides in its CD&A (Compensation Discussion and Analysis) reporting through their willingness to disclose not only the fees paid for executive compensation consulting and management services, but also the fact that the compensation consultant holds an equity stake in the consulting firm,” Nappier said. “Shareholders will finally have the information they need to make an informed decision on whether the company”™s compensation policies and practices adhere to high standards of professional ethics and best practices. The SEC should take note of Caterpillar”™s example and require these disclosures for all public companies.”
One proposal filed at both Abercrombie and Supervalu asked each company to adopt policies on internal pay equity, which is the relationship between compensation received by the chief executive officer and that received by other named executive officers.
Equilar Inc., an executive compensation research firm, found that CEOs of American companies were paid nearly three times more than the average pay for all other named executive officers. Credit rating issuer Moody”™s Investor Service has said that a multiplier between the CEO and any other NEOs exceeding 3.0 times the total pay could negatively affect a company”™s debt rating and cost of capital, noting that a large gap may signal leadership failures at the board level.
As part of the settlement, each company will exceed disclosure required by the Securities and Exchange Commission by providing more details in the compensation discussion and analysis section of the 2008 proxy statement on how internal pay equity is a factor in the pay-setting process.
“The oversized paychecks to executives complicit in the recent subprime debacle is just another example of the continuing saga of how some company board of directors abdicate their responsibility to ensure proper scrutiny and disclosure of executive pay packages,” Nappier said. “It underlines the fact that executive compensation inconsistent with company performance severely threatens the credibility of company leadership, and, over time, erodes that company”™s value to shareholders. These four companies have responded to the need for greater transparency on how executives are being paid, a critical step in allowing shareholders to evaluate how corporations are spending shareholder dollars and whether or not they are protecting the bottom line.”
