As populist anger rises over executive pay amid the recent fallout from the finance industry meltdown, Edison International last week announced that it had joined a short list of L.A.-area companies giving shareholders an advisory role to set executive compensation – the so-called “say-on-pay” vote.
The approval represents a reversal of the Edison board’s opposition. In a proxy vote at the company’s annual meeting in April, the board had recommended a “no” vote on say-on-pay. However, shareholders narrowly approved the concept, and the board then re-examined the issue and finally adopted the policy.
Edison joins KB Home and Occidental Petroleum Corp. as the only L.A.-area public companies – besides banks and other recipients of federal bailout funds that must have say-on-pay policies in place – granting shareholders an advisory vote on executive pay.
Shareholders at Edison will get their first say on the company’s executive pay policies at the company’s upcoming annual meeting in April.
But shareholders will only get to consider the company’s executive compensation philosophy and policies as outlined in the annual proxy statement. Edison spokesman Charles Coleman said the policy does not apply to specific compensation amounts granted to executives.
Furthermore, the say-on-pay shareholder votes that are taken each year are advisory only and not binding on the board.
Shareholder activist groups that have been pushing for more say on executive compensation at public companies nationwide said this is part of the compromise that has made say-on-pay policies more palatable to companies.
Several other local companies, including Walt Disney Co., face shareholder proposals for say-on-pay votes at their annual meetings this year. Shareholders at Activision Blizzard Inc. overwhelmingly approved a shareholder proposal for say-on-pay in 2007, but the company has not formally adopted the proposal.
Nationwide, more than 100 public companies are facing say-on-pay proposals from shareholder activist groups at their annual meetings this year.
Rosemead-based Edison, through its Southern California Edison subsidiary, supplies electricity to 13 million people in Southern California. It is the seventh biggest public company, based on market cap, with headquarters in Los Angeles County.
The trend toward say-on-pay seems to be building momentum amid outrage over bonuses paid to executives at big banks and financial services companies that received federal bailout funds after the market meltdown of September 2008.
“This is part of a big populist movement that’s a reaction to grievous mistakes made by boards,” said Joel Kurtzman, senior fellow at the Milken Institute in Santa Monica.
Critics have long complained that big executive pay packages have been detrimental to shareholders. They have cited cases where companies underperform during the leadership of a highly compensated executive team and other cases when the pay is excessive compared with competitor companies. They have also cited cases when executive pay is way out of proportion to what the average workers earns.
The populist reaction has also led to say-on-pay proposals in Congress that would apply to all publicly traded companies. The House passed a say-on-pay measure early in 2009. But a similar measure has been pending for months before the Senate Banking Committee; its fate is now uncertain given the recent announcement of the committee chair, Sen. Christopher Dodd, D-Conn., that he is retiring at the end of the year.
At Edison, the say-on-pay proposal was first introduced for consideration at the company’s 2008 annual meeting by shareholder activist and Redondo Beach resident John Chevedden. The resolution failed to pass at that meeting, but Chevedden brought it back at the 2009 annual meeting.
In his statement in favor of the say-on-pay proposal, Chevedden cited the need for shareholder input in light of the retirement package of former Chief Executive John Bryson, which was reported to total $65 million. Bryson retired in fall 2008 when Theodore Craver took over as chief executive.
Chevedden also said that the Corporate Library, a corporate governance watchdog group based in Portland, Maine, rated the company “high concern” in pay granted to chief executives. He also noted that several Edison directors also served on boards of companies that the Corporate Library had rated “D” or “F” in their fiduciary responsibilities.
In its proxy argument against say-on-pay, Edison’s board countered that its executive compensation policies are tied to the company’s performance and shareholder value, and that a say-on-pay policy was not needed. The board statement also noted that Bryson’s retirement package was not a severance payout but rather an accumulation of previously granted pension benefits and stock options.
Edison shareholders voted 50.8 percent in favor of the proposal.
“If a vote like this gets more than 40 percent support, that’s a huge outpouring of support and boards should pay attention to this,” said Tim Smith, director of socially responsive investing for Walden Asset Management, a division of Boston Trust & Investment Management. Walden Asset Management has introduced the say-on-pay resolution that will be considered at Disney’s annual meeting in April.
However, the effectiveness of say-on-pay policies remains to be seen.
Tim Hodgson, senior research associate at the Corporate Library, said that mutual funds and pension plans generally haven’t taken stands against CEO compensation packages.
And there are other ways to challenge executive compensation, said Kurtzman of the Milken Institute.
“If the shareholders are upset with excessive compensation, they should vote to replace the members of the board’s compensation committee or the entire board itself,” Kurtzman said. “That would achieve more lasting results.”
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