Shareholders had their say on pay at two U.S. corporations last week—and for the first time ever in this country, the answer was “no.” Motorola held its annual meeting on May 3, where only 45 percent of shareholders cast votes in favor of its executive compensation plan; 44 percent voted against it, and 10 percent abstained. Occidental Petroleum then held its meeting last Friday. The company won’t disclosed precise results until later this week, but confirmed in a press release that its shareholders also gave management’s compensation plans the thumbs-down.
For Occidental in particular, this must sting. The company volunteered last year to start offering say-on-pay votes in 2010, and then took one in the kisser its first year out. Of course, CEO Ray Irani did take home boatloads of pay in 2009 ($31.4 million, according to Occidental’s proxy statement), while revenues, net income and earnings per share all tumbled from the banner year of 2008. Then again, share price did rise from $61 to $80 through 2009 as well.
As for Motorola… well, it’s been floundering for a while, looking for a whiz-bang successor to its Razr phone. It lost money in 2008, lost money in 2009, and may well lose money in 2010, too. Last year it divided the CEO role between two co-CEOs, with intentions to cleave the whole company into two separate entities sometime later this year. Meanwhile, co-CEOs Gregory Brown and Sanjay Jha took home $8.4 million and $3.78 million, respectively. If I were an investor in Motorola, I probably wouldn’t be thrilled with that either; the stock hasn’t seen a dividend or $10 per share since 2008.
Neither of these shareholder votes is binding, so the companies don’t face any immediate need to implement the will of the masses. But consider the governance implications here. Few actions speak more loudly to investors, employees and the public than what the board pays top management—but ignoring the will of investors who have expressed unhappiness about that executive pay would be one of them. Remember that investors have never previously had a single, clear mechanism to express their views on executive pay. Now they do. Frankly, I’m more surprised that we’ve only seen two negative votes so far.
What the Occidental and Motorola boards do next bears watching. I’m curious whether their compensation committees will restructure their executive pay plans wholesale, or merely adjust compensation amounts downward so the CEOs take home less money. Or they could ignore the shareholder votes completely; that would send a terrible signal, but it wouldn’t be a first for Corporate America. And until shareholders get additional power to pressure boards—say, through the right to place director nominations in the proxy—most companies probably can ignore shareholders with little real consequence.
Of course, ethics and compliance officers could play a role in awkward corporate moments like this, acting as senior advisers to the boards on a matter of paramount importance to setting the right tone at the top—which executive pay certainly is. Then again, I’m still skeptical that any subordinate can successfully speak truth to power on so sensitive an issue. I wouldn’t relish the task. I suspect more than few CCOs would simply stand aside and let the compensation committee do its own thing. After all, if the directors drop the ball, it will be their names on the “vote no” campaign next season, not yours.