Introduction. What are shareholders being asked to vote on?

Transcription

1 Introduction An advisory vote on executive compensation, also known as a say-on-pay vote, provides a company s shareholders with a non-binding vote regarding whether or not to endorse a company s executive compensation program and policies. Although a no vote does not obligate the company to take action, it would likely generate negative publicity as it has in the United Kingdom where an advisory vote has been required since In May 2008, AFLAC, Inc. became the first U.S. company to conduct a say-on-pay vote. In the 2009 proxy season, approximately twenty company will voluntarily conduct a sayon-pay vote. Additionally, under Section 7001 of the American Recovery and Reinvestment Act of 2009 (the "ARRA"), which amended Section 111(e) of the Emergency Economic Stabilization Act (the "EESA"), nearly 400 public companies will hold a say-on-pay vote, as a condition of receiving taxpayer money through the various government emergency relief programs. Section 7001 of ARRA amends EESA Section 111(e) to require any TARP recipient to "permit a separate shareholder vote to approve the compensation of executives, as disclosed pursuant to the compensation disclosure rules of the Commission," during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding. Appendix A provides, in reverse chronological order, the say-on-pay proxy proposals of thirteen companies which have voluntarily adopted a say-on-pay vote. Appendix B provides, in reverse chronological order, the say-on-pay proxy proposals of seven TARPrecipient companies which have adopted a say-on-pay vote, as required under emergency relief legislation. Responses to calls for a say-on-pay resolution continue to evolve. Appendix C provides the compensation survey which Schering Plough Corp. submitted to its shareholders in lieu of a say-on-pay vote. Appendix D is a copy of HP s press release announcing that it will seek a stockholder vote on whether to provide for an annual nonbinding advisory stockholder vote related to executive compensation. Appendix E is a copy of a letter from RiskMetrics Group s Governance Leadership Council to the Honorable Barney Frank encouraging flexibility in the design and implementation of say-on-pay legislation and regulations. Appendix F is a shareholder proposal submitted by the United Brotherhood of Carpenters Pension Fund seeking a Triennial Executive Pay Vote. What are shareholders being asked to vote on? The general practice among companies which have voluntarily adopted a say-on-pay vote is to request approval of both the executive compensation tables and the compensation philosophy and procedures as evidenced in the Compensation Disclosure & Analysis ( CD&A ). Of the thirteen companies sampled in Appendix A: Six companies AFLAC, Inc., H&R Block, Inc., Jackson Hewitt Tax Service, Inc., Par Pharmaceutical Companies, Inc., Verizon Communications, 2

2 Inc., and Zale Corp. are seeking approval for both their executive compensation tables and their compensation philosophy and procedures as evidenced in their CD&A; Two companies Blockbuster, Inc. and Tech Data Corp. are seeking approval for only their Summary Compensation Table (and related narrative); Two companies Intel Corp. and Motorola, Inc. are seeking approval for only their compensation philosophy and procedures as evidenced in their Compensation Disclosure & Analysis; RiskMetrics Group, Inc. is seeking approval for: (1) the company s compensation philosophy, policies, and procedures, as described in its CD&A; and (2) the board s 2008 compensation decisions for the company s named executive officers. In its 2008 proxy, RiskMetrics Group, Inc. also sought approval for the board s application of the company s compensation philosophy, policies and procedures to the company s 2009 performance objectives, but the company did not put such an issue up for a vote in its 2009 proxy. MBIA, Inc. is seeking approval for the CEO s 2008 compensation and his 2009 salary; and Littlefield Corp. is seeking confirmation that the President and CEO s total compensation, along with the total compensation for directors, is within 20% of an acceptable amount. Among TARP-recipient companies, all seven companies sampled in Appendix B are requesting approval for the CD&A, the compensation tables, and any related materials, as required under the American Recovery and Reinvestment Act of 2009 (the Recovery Act ). The language these companies used in their proposals closely tracks the language in the Recovery Act. Schering-Plough Corp. opted to submit to its shareholders a compensation survey in lieu of holding a say-on-pay vote. The survey can be found in Appendix C. Disclosure of actions that the company will take in response to the say-on-pay vote Under securities regulations, when a company voluntarily submits a proposal to its shareholders, it must state what actions it will take if the proposal is not approved. Conversely, when a company submits a mandatory proposal to its shareholders, such as a say-on-pay vote at TARP-recipient companies, the company does not need to provide such information. Of the thirteen companies sampled in Appendix A: 3

3 Twelve companies AFLAC, Inc., Blockbuster, Inc., H&R Block, Jackson Hewitt Tax Service, Inc., Littlefield Corp., MBIA, Inc., Motorola, Inc., Par Pharmaceutical Companies, Inc., RiskMetrics Group, Inc., Tech Data Corp., Verizon Communications, Inc., and Zale Corp. stated that they will take into account the outcome of the say-on-pay vote when considering future executive compensation arrangements; and Intel Corp. stated that it would consult directly with shareholders to determine the cause or causes of any significant negative voting result. Among the TARP-recipient companies in Appendix B: Five companies Bank of America Corp., Goldman Sachs Group, Inc., JP Morgan Chase & Co., Morgan Stanley, and Wells Fargo & Co. stated that they will take into account the outcome of the say-on-pay vote when considering future executive compensation arrangements; and Two companies Citigroup, Inc. and PNC Financial Services Group, Inc. did not state what actions they would take as a result of the vote. 4

4 Appendix A: Voluntary Adoption of a Say-on-Pay Vote 1) Tech Data Corp. (Proxy filed 4/30/2009) PROPOSAL NO. 4 ADVISORY VOTE ON COMPENSATION OF THE NAMED EXECUTIVE OFFICERS We believe that both the Company and shareholders benefit from responsive corporate governance policies. Following the voice of our shareholders, the Company has adopted a policy to submit the compensation of our NEOs to our shareholders for a non-binding, advisory vote on an annual basis. The Company s Corporate Governance Principles provide: The Board values the input of shareholders regarding the compensation practices of the Company. Each year, the Board will approve a proxy that gives shareholders the opportunity to vote, on a nonbinding, advisory basis, to ratify the compensation of the Company s named executive officers as shown in the summary compensation table and related notes contained in the proxy. We believe that our compensation policies and procedures align with the long-term interests of our shareholders. The Company s compensation program is guided by a carefully contemplated philosophy that total executive compensation should vary based on achievement of defined financial and non-financial goals and objectives, both individual and corporate and should be focused on long-term strategies to build shareholder value. The Compensation Committee acts diligently to provide compensation opportunities that are competitive and that emphasize performance with a long-term perspective. We recognize that our place in the distribution channel is one with very low margins and our compensation program reflects this business reality. We believe that our philosophy and practices have resulted in executive compensation decisions that are appropriate and that have benefited the Company over time. We invite you to consider the details provided in the COMPENSATION DISCUSSION AND ANALYSIS, as well as the tables and other information that follow the SUMMARY COMPENSATION TABLE. These will present you with the breadth of the considerations that are taken into account when setting compensation, and details of the valuation of the elements of the compensation program as a whole. The Summary Compensation Table and its footnotes allow you to view the trends in compensation and application of our philosophies and practices for the last three years. Because your vote is advisory, it will not be binding. However, the Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE, ON AN ADVISORY BASIS, FOR THE COMPENSATION AWARDED TO THE NAMED EXECUTIVE OFFICERS FOR THE FISCAL YEAR ENDED JANUARY 31, 2009, AS SHOWN IN THE SUMMARY COMPENSATION TABLE. 5

5 2) RiskMetrics Group, Inc. (Proxy filed 4/29/2009) Item 4 Advisory Vote on Executive Compensation The Board's Corporate Governance Principles and Guidelines provide that the Company's shareholders will be given the opportunity to vote on an advisory (nonbinding) resolution at each annual meeting to approve the Company's Compensation Discussion and Analysis as outlined in the annual proxy statement. The Board, after consulting with its Nominating and Corporate Governance Committee, has determined that the best way to implement this principle giving shareholders as much opportunity to comment as possible is to accord shareholders TWO votes. First, shareholders may indicate their position (by a yes or no vote) with regard to the Company's overall executive compensation philosophy, policies and procedures. These are described above in the Compensation Discussion and Analysis, Sections I and II. Second, shareholders may indicate their position (again by a yes or no vote) with regard to whether the Board executed these principles appropriately in making its 2008 compensation decisions. These decisions are described above in the Compensation Discussion and Analysis, Sections III and IV. The Board recommends that shareholders approve, in an advisory vote, each of the following two resolutions: A. RESOLVED that the shareholders approve the Company's overall executive compensation philosophy, policies and procedures, as described in the Compensation Discussion and Analysis (Sections I and II) in this Proxy Statement. B. RESOLVED that the shareholders approve the compensation decisions made by the Board with regard to NEO performance for 2008, as described in the Compensation Discussion and Analysis (Sections III and IV) in this Proxy Statement. Because your vote is advisory, it will not be binding upon the Board. However, the Human Resources and Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements. THE BOARD RECOMMENDS A VOTE FOR EACH OF THESE PROPOSALS. 6