Randomly Noted

Recently approved ”proxy access” should mean  more would-be directors’  names listed in the voting packages received by shareholders.

But an even greater additional power granted big institutional investors by the regulation, which mandates larger holders’ director nominees be listed alongside board-approved selections, may be demonstrated through their greater leverage in private meetings with current board members.

Here’s Kathleen L. Casey, one of the five commissioners at the Securities and Exchange Commission, as part of  her dissent last week on this issue.

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The fraught and mixed nature of Americans’ feelings towards big pay days seemed on display today as the so-called pay czar, Kenneth Feinberg, criticized 17 U.S. firms for pay practices at the height of the credit crisis.

Despite the critique of the bankers for handing out some individual payouts above $10 million while taking help from the government, Feinberg didn’t even reach for his biggest weapon, such as it is, a censure that the firms broke with the public interest.

All of which leaves one thinking, why undertake this particular exercise? Why the preceding hoopla?

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The latest example of tin ears in the so-called c-suites and in board rooms comes courtesy of reporter Elizabeth Holmes in today’s Wall Street Journal. The retailer Abercrombie & Fitch Co. agreed to pay its CEO $4 million to limit his personal use of the company’s jet.

That’s right, CEO Michael Jeffries gets a lump sum payment of $4 million to induce him to only fly in the corporate jet for personal trips up to $200,000 a year. 

Jeffries’ prior employment agreement gave him unlimited personal use of the corporate jet. It’s a perk he seems to have put to good use. His personal travel on the jet in 2008 tallied about $1.1 million, the Journal said.

It’s simply hard to imagine why a board of directors of a public company would find it necessary to put unlimited personal use of a corporate jet into a CEO’s employment agreement.

One more piece of context supplied by the Journal article. Jeffries’ pay package in 2008, the last year for which data are publicly available, totaled $15.9 million.

Think about how this news is going to go over with Abercrombie & Fitch employees, customers and shareholders. Not to mention the broader public, where the deep recession has stirred significant resentment against high CEO pay, especially in situations where the pay doesn’t seem tied to company financial performance.

Abercrombie’s financial performance isn’t even the issue here, in this blogger’s view. I’ve maintained many times that what upsets many people is not so much high pay at top jobs when companies are performing, but the perks granted alongside that high compensation, perks that are typically unavailable to others.

That’s the tax “gross ups,” the easy terms on a mortgage, the country club payments. The view of the resentful, understandably, is that if you are making a lot of money you can pay your own taxes like everyone else.

Same thing applies here. With nearly $16 million in compensation in 2008, it doesn’t seem like too much to ask the CEO to limit his personal, not business use, of the corporate jet, and not have to pay big dollars for that adjustment.

Let’s hear at least one cheer for the corrective power of market forces, the power of public opinion, government pressure or more likley a combination of the three. Maybe even much maligned boards of directors deserve a little credit.

The cause for this at least tentative cheer: the front page article in today’s Wall Street Journal that reports compensation for U.S. chief executives edged lower in 2009, marking the first time in some 20 years that CEO pay declined for two consecutive years.

In 2009, the Journal’s Joann Lublin reported today, the median compensation for CEOs at 200 major U.S. companies fell 0.9% to $6.95 million. In 2008, pay fell 3.4%. This despite the fact that many of these companies’ stock prices, at least, and admittedly starting low, did pretty well in 2009.

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The largest U.S. public pension fund has launched a well-aimed campaign to get more public companies to adopt a “majority” rules policy for uncontested election of directors.

Indeed, the effort by the California Public Employees’ Retirement System is the proper use of this institutional investor’s heft to strike a better balance between shareholders and the boards of directors that are supposed to represent them.

Simply stated, too many companies have stuck with a “plurality” system when a director runs unopposed. Essentially, the plurality has to only be one vote, even if all other holders “withhold” their votes from the director.

“Majority” processes vary but they are pretty much what they sound like and should be familiar to anyone who has sat through a grade school civics class. Essentially, you have to get more “for” votes than those withheld or you have to at least offer to resign.

In this blogger’s previously expressed view, universal acceptance among U.S. publicly traded companies of the majority vote for directors makes unnecessary some of the other investor power pushes in which CalPERS and others have been active.

One of those is the so-called say on pay. It’s a misnomer on its face since most of those proposals for shareholders to have an after-the-fact vote on executive compensation are non-binding. Not much of a say. In majority voting, shareholder votes for directors have real power and can be used against directors at companies where shareholders think CEO compensation is too high.

Also unneeded is the ability of some large holders to nominate directors whose candidacy would be included and voting materials distributed by the company. It’s fascinating that this long-standing governance issue, referred to in short hand as “proxy access,” has now arisen in Senate deliberations about much broader financial regulatory reform, according to today’s Wall Street Journal.

Although I support regulatory or legislative oomph behind adoption of majority voting, it’s a trend that seems to be taking off without official edict. Maybe it’s the undeniable lack of fairness in the “plurality” system.

CalPERs said in a  press release that as of September 2009 about 71% of the S&P 500 companies and 50% of the Russell 1000 had come around to the majority rules concept.

CalPERS specifically said it would ask 58 of the top U.S. companies in its equities portfolio to adopt the majority rules standard. Said George Diehr, chair of the CalPERS investment committee, “The policy should include the required resignation of any director that receives a withhold vote greater than 50% of the votes cast. “

Interesting: the top two bosses of the New York Times Co. got big 2009 pay raises. NYT Chairman Arthur Sulzberger Jr.’s pay more than doubled to $6 million; CEO Janet L. Robinson got $6.3 million – 32% more than a year earlier. Granted, the NYT’s share price has nearly tripled over the past year, and the top honchos got pay cuts in 2008. Then again, the bald fact is: the NYT is a troubled newspaper-focused company. It lacks the Washington Post Co.’s lucrative Stanley Kaplan education unit and Pearson’s textbook publishing business not to mention its premium-subscription financial information operations. It will be interesting to see how Sulzberger defends his payout.

The top bankers at Big British financial institutions appear to be more responsive than their American counterparts to public outrage about large bonuses, especially for those banks that received government aid.

Our Newswires colleague Patricia Kowsmann inLondon reports Lloyds Banking Group Chief Executive Eric Daniels waived his 2009 bonus. He was entitled to 2.3 million British pounds despite the company planning to report a net loss for the year and being 41%-owned by the British government.

Stephen Hester, who heads Royal Bank of Scotland, 84% owned by the U.K. government, will turn down a 1.6 million bonus, Kowsmann reported.

Perhaps more surprising was the bonus turn down by Barclays CEO John Varley. That bank has thrived and taken no government assistance.

Might simply be a case – rare as it seems - of true long-term thinking in the executive suite. The Barclays restraint should serve the bank well with an angry public. 

Significant bonuses at loss-making institutions are no doubt harder to understand.

A mini-flap has arisen around President Barack Obama and the word ‘begrudge’ as it applies to the compensation of top bankers.

Perhaps of more interest in an interview the President recently conducted with Bloomberg BusinessWeek is Obama’s continued support for shareholder ‘say on pay’ provisions, which this blogger has categorized as diversionary and unneeded.

First the flap. Various news reports, including from Bloomberg, led with Obama saying he doesn’t “begrudge” the bonuses awarded the well-known leaders of  top Wall Street firms Goldman Sachs Group Inc. and JPMorgan Chase & Co.

That prompted the White House Blog to post an item with its own lede: “We wanted to clear up some confusion about where the President stands on bonuses and excessive executive compensation.”

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In the ongoing furor about top banker pay the main combatants have been politicians, regulators, the bankers themselves and the amorphous public, the individual compenents of which care about such matters in varying degrees.

Largely forgotten have been the shareholders of these publicly traded investment and commercial banks. Surely, sky high compensation is a bigue for shareholders. When a high percentage of annual revenue goes to pay people, it’s money that otherwise belongs to the company’s owners, the shareholders. It’s a pretty direct relationship.

Now, the shareholders are starting to make noise. Maybe their representatives, the corporate boards of directors, will listen.

Aaron Lucchetti reports in today’s Wall Street Journal that the statement by the new chief executive of Morgan Stanley, James Gorman, about reducing the percentage of revenue that goes to compensation “followed prodding by some large shareholders.”

“Company officials acknowledge being questioned by investors since Morgan Stanley reported three weks ago that compensation and benefits were equal to 62% of net revenue at the New York company,” Lucchetti reported.

Good for the shareholders. Other company holders should pay attention.

We’ll know we have entered a new era in compensation for top bankers when a board of directors actually exercises a “clawback” provision of the newly minted and less generous bonuses being proffered on Wall Street.

The headlines, of course, are about the dollar value of the bonuses now being handed out for work in 2009. Most noted and notable was Friday’s news that Golman Sachs Chairman and Chief Executive Lloyd Blankfein ‘only’ got a $9 million bonus, all in stock and no sale allowed for five years.

Beneath the news headlines is another reality. Yet more power is is being given to boards in their greater ability to pull back stock awarded in bonus packages if after the fact any tarnish is found on the results that supported the bonus payments.

These emboldened clawback provisions apply not just to Goldman executives but at other financial services companies, too. Indeed, the lack of certainty built into these stock-based bonuses (themselves a better way to tie executives to the firms’ long-term interests than cash) have spurred a new term, “shares at risk.” They earn that sobriquet because “the shares could be clawed back or lost if something goes awry at the firm,” recently wrote The Wall Street Journal.

How ironic that corporate boards of directors, accused of broadly being asleep at the switch during the accounting scandals of the late 1990s and the over-the-top risk-taking that led to the credit crunch, keep increasing heir power in the reformist wakes of every scandal.

Now they are getting more strings to attach to stock-based bonuses after widely being accused of letting top executive compensation, on Wall Street and Main Street, get out of control.

So the skeptic in me wants to see a board actually use such clawback power in coming years, when justified, of course, to see if it is going to be different this time.

Meanwhile, the debate about whether a bonus of $9 million was ‘enough’ for Blankfein after the sterling year enjoyed by Goldman will continue.

No doubt the heat and glare of the public and politicians about post-meltdown bonuses at commercial and investment banks helped rein in Blankfein’s 2009 compensation, along with the pay of other top people at Goldman. The New York firm has been dead center in the populist loathing.

Another question is whether the new sensibility about pay will last if and when the spotlight shifts elsewhere.

As for Blankfein, it’s worth keeping in mind that he was paid more than $68 million in cash and stock in 2007 and The New York Times reported his total compensation since 2000 comes in above $181 million, though not all has been cashed out.