We all know CEOs get lavish pay and perks, often while their companies falter. But consider this: One CEO is going to get more than $75 million after he's dead.
President Barack Obama has imposed a $500,000 salary limit for top executives at companies that get federal bailouts, but that won't begin to rein in this culture -- even if it is extended to other companies, as some lawmakers want.
Investors, however, can pick up where Obama leaves off because there's a rebellion afoot.
Shareholders will have a chance later this year to vote against excessive pay and perks at scores of companies, including Citigroup (C, news, msgs), JPMorgan Chase (JPM, news, msgs), AT&T (T, news, msgs), Walt Disney (DIS, news, msgs) and General Dynamics (GD, news, msgs).
Activists at labor unions and pension funds have put "anti-greed" proposals up for vote at the annual meetings of about 200 companies.
So watch your mail (or your e-mail) for the ballots that all shareholders get each year before companies' annual meetings, which usually are held in May. Read the ballot carefully. Don't just sign away your proxy.
Then apply an old political saw: If you don't vote, you've got no right to complain.
A gusher of greed
The companies' defense, almost uniformly, is that the huge pay packages attract top talent. But failed financial giants Countrywide Financial, Lehman Bros. (LEHMQ, news, msgs), Merrill Lynch and American International Group (AIG, news, msgs) paid their top executives very well. Where did that well-paid talent get them?But Obama's salary limit can do only so much because absurdly high levels of CEO compensation gush out through myriad channels. Limit one reward, the others go up.
- Talk back: Should executive compensation be reined in?
Giveaways include stock and incentive stock options, special retirement plans and lavish perks. Some CEOs have even wrangled promises for millions of dollars for years after they die, defying the adage that you can't take it with you when you go.
To help stop this nonsense, check the ballots you get from companies you own for measures that:
- Ban payments to dead CEOs.
- Delay bonus and retirement payments to CEOs.
- Give shareholders the right to vote on CEO pay packages.
- Limit how much other work outside CEO pay consultants can do for a company, to avoid conflicts of interest.
One hitch: None of these votes is actually binding on companies. Boards can simply ignore them. But that's getting tougher and tougher to do as shareholders get active.
Here's a look at the problems behind the proposals:
'Golden coffins'
In most jobs, pay serves as an incentive to make people work harder. But a privileged few get paid even after they die, when they'll presumably work less. Prime examples:- By far the biggest rewards for moving on to the hereafter go to an executive at Comcast (CMCSA, news, msgs). The cable company has promised to pay chief Brian Roberts a $47.5 million bonus if he dies on the job. (The check would go to his heirs, of course.) There's also $13.2 million in continuing pay, plus restricted stock, for a total post-death payout of $75 million. Comcast says the continued bonus and pay for five years after Roberts' death offsets the lack of a company-funded retirement plan. Those plans, common for CEOs at large companies, can be worth tens of millions of dollars.
- Disney has promised to keep paying CEO Robert Iger's salary for three years after he departs for the next world, if he dies before leaving his job. As a result, his estate will get $4.5 million upon his death.
Such arrangements have reformers scratching their heads. "Pay is supposed to be for performance," says Cornish Hitchcock, a lawyer who crafts shareholder proposals filed by Amalgamated Bank LongView Funds. "If an executive is dead, you are not getting performance."
Yet "golden coffins" are fairly common. In 2006, at least 17% of Fortune 100 companies said their CEOs were entitled to death benefits, according to Equilar, an executive compensation research firm.
Companies defend these deals as a kind of life insurance. Disney, for example, explains that death benefits "can be an important inducement to attract and retain executives who seek to provide economic security for their families in the event of their death."
Continued: A delay in bonuses?
But consider what these CEOs earn while alive and kicking:
- Comcast's Roberts got pay, bonus and incentive stock worth $46.8 million over two years (2006 and 2007), according to the company, and he reaped $22.5 million by exercising stock options last year. His heirs would also get $223 million from a life insurance policy on which the company pays premiums.
- Iger made $58.2 million in pay, bonus, options and incentive stock over two years (2007 and 2008), according to company reports, and he has a pension plan that was recently worth $8 million. Does he really need a $4.5 million death benefit? Maybe that's why Disney recently agreed to stop offering death benefits to newly hired execs.
Did they need added incentives? If you answered no and you own stock in these companies, you can vote for shareholder proposals opposing these death benefits. You'll also find them at Nabors Industries (NBR, news, msgs) and Charles Schwab (SCHW, news, msgs).
A delay in bonuses?
At companies such as Countrywide Financial, Merrill Lynch and Bear Stearns, CEOs encouraged the excesses that fed the housing bubble -- for personal gain. Their stocks shot up, and they reaped big bucks by cashing out options and incentive stock. The bubble broke, but they're still flush with cash. (Read "Fat CEO pay fed the mortgage mess.")Angelo Mozilo, the former CEO of Countrywide Financial, may be the poster child for this behavior. Between 2004 and 2007, as his company helped rev up the subprime-mortgage market, Mozilo cashed out options worth $414 million. The housing market and his company crashed and burned.
The American Federation of State, County and Municipal Employees, the AFL-CIO and other shareholder activists are trying to head off such problems with proposals at companies including Charles Schwab, JPMorgan Chase, American International Group, Bank of America (BAC, news, msgs) and homebuilder NVR (NVR, news, msgs).
Shareholders will vote on whether companies should force executives to hold most of their incentive stock and options for a few years after they quit. Under some proposals, they could get all of their incentive pay two years after leaving. Under others, incentive stock and options would be released over three years, as long as the company continued to hit performance metrics.
Compensation consultants' conflicts
Many analysts believe the CEO pay boom was fueled by a conflict of interest at consulting firms that advise boards on executive pay. It's not unusual to see these firms get contracts for other lucrative work, such as managing employee benefits packages. Because these consultants want to keep this other work, they're tempted to recommend juicy pay for CEOs.To get at potential conflicts of this sort at Halliburton (HAL, news, msgs), the AFL-CIO wants shareholders to vote on a proposal that would ask the company to reveal what other services Hewitt, its executive pay consultant, provides and how much it gets paid.
'Say on pay'
By far the most popular kind of pay-related proposal for shareholders would let them give a thumbs up or down on executive pay packages each year.But here, Obama may not really need your help. He pitched legislation calling for such votes when he was a senator. Now that he is a president with a majority in Congress, "say on pay" is likely to become law soon, regardless of how shareholders vote for it this annual meeting season.
Does your vote count?
As I mentioned, companies can simply ignore the votes on these anti-greed proposals.But they do so at their own peril, says John Chevedden, a shareholder activist who has been putting proposals on company proxies for years. The reason: Shareholders notice when board members continually ignore their wishes. Eventually, they vote those board members out.
That may be one reason companies often give activists what they want in negotiations after activists file to put votes to shareholders. One example: Rather than see the issue put to vote, Occidental Petroleum (OXY, news, msgs) recently agreed to requests by AFL-CIO to modify its golden coffin. The company discontinued the practice of vesting of non-performance-based awards after an executive's death.
Government salary caps are controversial, but there are good reasons for shareholders to act. Many analysts think that huge option grants rewarding short-term performance contributed to the real-estate bubble and the subsequent damage.
"Executive pay problems were contributing factors," says Timothy Smith, an activist shareholder at Walden Asset Management. "It is in everyone's self-interest to send a signal to boards that they want checks and balances on executive pay."
And here's another reason to act now: With the advent of online voting, participation by retail investors -- people like you and me -- has fallen sharply. When we don't vote, our votes are cast by our brokers, who traditionally vote with management, says Richard Ferlauto, who helps develop shareholder proposals for the American Federation of State, County and Municipal Employees.
The activists have given us the opportunity to speak out. If you're mad, watch your mail and your e-mail, scan your ballot for anti-greed proposals -- and vote.
Continued: On the ballot at some high-profile companies
On the ballot at some high-profile companies
Golden coffins -- votes on continued pay after executives pass away: Abercrombie & Fitch (ANF, news, msgs), Comcast, Charles Schwab, General Dynamics, Nabors Industries and Disney."Hold through" retirement -- would delay a large portion of incentive pay for two years into retirement: American International Group, Bank of America, Citigroup, JPMorgan Chase and NVR.
Delayed bonuses -- would hold a portion of stock and options bonus pay for up to three years: Charles Schwab, E-Trade Financial (ETFC, news, msgs), JPMorgan Chase and Legg Mason (LM, news, msgs).
Consultants' conflicts -- would ask for an independent consultant or more details on business contracts: Caterpillar (CAT, news, msgs), Citigroup and Halliburton.
Say on pay -- would ask for regular votes on executive pay packages: American Express (AXP, news, msgs), American International Group, Apple (AAPL, news, msgs), AT&T, Citigroup, Exxon Mobil (XOM, news, msgs), Ford Motor (F, news, msgs), General Electric (GE, news, msgs), General Motors (GM, news, msgs), Home Depot (HD, news, msgs), McDonald's (MCD, news, msgs) and Disney.
Sources on ballot issues: RiskMetrics Group; American Federation of State, County and Municipal Employees; AFL-CIO.
At the time of publication, Michael Brush did not own or control shares of any company mentioned in this column.