The "say on pay" movement isn't saying as much as some people had hoped. So far this year, most proposals to let shareholders make nonbinding "approve" or "disapprove" votes on executive compensation are failing, and some are getting even less support than they did last year.
So much for bombing CEO pay back to the 1970s. But it's too early to give up.
Support for say on pay is still pretty strong. The movement is only three years old. The swing voters, mutual funds such as those run by Baltimore's T. Rowe Price and Legg Mason, seem to be warming to it. And political momentum for requiring say on pay by law is still high.
CEO pay is set by corporate directors, who tend to belong to mutual back-scratching societies that spread the dough around as long as everybody acts nice. The idea behind say on pay is to let shareholders publicly opine on compensation, which has remained stratospheric even as corporate profits have slumped.
It's their company, after all. Even though a shareholder "thumbs down" on boss emoluments wouldn't require action by directors under these plans, it might shame them into shrinking the feed bag.
Companies that have formally adopted say-on-pay policies include Aflac, Verizon, Blockbuster and Par Pharmaceutical. So far this year, a majority of shareholders at six companies, including Alaska Air Group and electric utility PG&E;, have voted in favor of them, according to RiskMetrics.
But proponents of say on pay have lost at more than 30 other companies this year.
Shareholders for Bethesda-based Lockheed Martin, Maryland's biggest company, rejected a say-on-pay proposal in April.
Those at other big Maryland employers - Black & Decker, Constellation Energy - apparently haven't mustered enough energy to even get one on the ballot. (Black & Decker included a union proposal to limit executive pensions, which was defeated.)
Average support for say on pay was 43 percent at all meetings where it was considered - the same as last year, said RiskMetrics.
But support fell from last year's levels among owners of big financial firms such as Citigroup, Wachovia and Merrill Lynch.
(Maybe shareholders didn't want to distract those companies as they try to emerge from subprime mortgage pits. But considering the money those firms' CEOs pocketed for getting them in there, it's a wonder say on pay didn't pass unanimously.)
Say-on-pay proponents are playing the expectations game beloved by presidential candidates.
Last year was only the second time resolutions to adopt say-on-pay votes were on proxy ballots. So to get an average "for" vote of 43 percent was "jaw-dropping," says Stephen Davis, president of Davis Global Advisors, a corporate governance consulting firm. "This year, we've seen an inching upward. So by comparison with last year we don't see the same steep rise, but the direction is still up."
Union and government pension funds and "socially responsible" mutual funds can pretty much be counted on to vote for this kind of proposal. Hedge funds and other private equity managers can mostly be counted on to oppose it. So mutual funds, which vote corporate proxies on behalf of their money-management clients, could make the difference.
The larger group of funds is in the middle. At least some favor say on pay.
Last year T. Rowe Price voted for say-on-pay resolutions about 80 percent of the time, said Donna Anderson, a corporate governance analyst and co-chair of the firm's proxy committee. (Mutual funds don't have to reveal this year's votes until late summer.)
A review of the record shows that Legg Mason managers have also supported at least some say-on-pay proposals.
Like many groups, Price and Legg leave proxy voting decisions to fund managers. But Price publishes general guidelines, and they "generally support say-on-pay proposals," Anderson said. Even so, managers might balk if a company they owned were singled out in its industry for say-on-pay treatment.
Most fund companies are not as pro-say as Price. Others with a record of supporting say on pay include Janus, Schwab and Franklin Templeton, according to a union study.
Soon, however, all corporations might be forced to give their shareholders an advisory role on executive compensation.
Price favors a law requiring it. It's already common in Britain and Australia, and "we think say on pay generally would be a good practice to import into the U.S.," Anderson said.
The House of Representatives approved a bill requiring say on pay last year, although a Senate version hasn't gone anywhere. Both Democratic presidential candidates support it.
Even some folks in the executive suite are getting comfortable with say on pay. According to a survey by BDO Seidman, 61 percent of chief financial officers at technology companies favor it.
Letting corporate owners judge the compensation of executives who work for them isn't exactly a radical idea. And it's not going away.