The staff of the Securities and Exchange Commission is allowing companies to omit a new AFL-CIO proposal that seeks to bar current or former CEOs from serving on the compensation committee.
So far, Honeywell International, Verizon Communications, and Time Warner have successfully argued that this resolution can be excluded under Rule 14a-8(i)(6), because the companies lack the power to implement it.
For instance, Time Warner’s outside lawyers asserted in a Jan. 4 no-action petition that the proposal is excludable because the company cannot guarantee that compensation committee members will not become chief executive of a public company while serving on the panel. Time Warner lawyers also pointed out that the proposal provides no opportunity or mechanism for the company to remedy any violations of the requested policy.
In a Jan. 28 letter, Robert McGarrah, counsel for the AFL-CIO, responded that Time Warner would be able to cure any violation, because the proposal states that “it does not affect the unexpired terms of previously elected directors,” and thus a panel member who became a CEO would continue to serve out the remainder of his or her term on the committee.
“We’re very disappointed that the SEC made its decision on technicalities," said Vineeta Anand, chief research analyst with the labor federation. "By doing so, [the SEC] is encouraging companies to use the ‘kitchen sink’ approach to no-actions.”
Anand said the AFL-CIO will return with a revised proposal, noting, “[w]e will be back.”
Cigna and International Paper previously obtained SEC permission to exclude this proposal on proof-of-ownership grounds. The AFL-CIO has filed similar resolutions at Goldman Sachs, Eli Lilly, and Paccar. The labor federation withdrew at Avon Products after a settlement with the cosmetics company, which has agreed to revise its selection guidelines for its compensation committee so that non-CEO status will be a key factor, Anand said.
This proposal, according to AFL-CIO officials, was inspired by several academic studies that concluded that firms with multiple CEOs on their pay panels tend to ratchet up executive pay. This year, the labor federation targeted firms with a combined CEO/board chair, where CEO pay has increased despite negative share performance, and where at least two external chief executives sit on the compensation committee.
It is not always wise to be prespective in these circumstances but unfortunately the indusrty that is executive reumueration has proved to be incapable of ethical/rational self governance in the matter of remuneration. The agency problems continue to abound and in my experience CEO's are complice in this- the circle unfortunately needs to be broken and the ruling in one way of breaking the nexus. There is a need for fresh opinions and views on the rem committee and a need to break away from the patterns of the ealier part of this century. The behaviour of the companies listed to circuvent the ruling is just another example of the desperateness of the group to keep the status quo and of course employ legal firms in devising schemes around the ruling. One wonders what would be the outcome if all these high IQ people focussed instead on running the company and production plans instead of extracting large rents.
Likewise if rem continues to spiral then we will need to employ the minds of likewise high IQ persons to devise exit strategies and much more active and transparent market for replacement executives and directors. Do companies really believe there is a shortage of suitable executives or is this manufacturered to keep the rent high. More transpaency in this market for employment is absoultely essential.