The Wall Street Journal-20080116-Union Targets Exit Perks For Executives
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Union Targets Exit Perks For Executives
Union pension-plan activists aim to raise a new executive- compensation issue at corporate annual meetings this year: so-called gross-ups to cover income taxes on payouts.
The American Federation of State, County and Municipal Employees wants to put the matter to a vote by shareholders at a half-dozen companies this year: American Express Co., Clear Channel Communications Inc., CVS Caremark Corp., Nabors Industries Ltd., Northrop Grumman Corp. and Textron Inc.
Gross-up payments from companies reimburse senior executives for taxes the executives owe on company-provided perks and other benefits. Richard Ferlauto, AFSCME's director of corporate governance and pension investment, said the practice is fairly common and is "an abuse of the shareholders' wallet."
"In America, they say the only thing certain is death and taxes," Mr. Ferlauto said in an interview. "Well, not if you're a CEO."
AFSCME's push calls for targeted companies to adopt policies specifying that top executives won't receive any tax gross-up payments that aren't provided to other managers.
Mr. Ferlauto said the labor union believes chief executive officers shouldn't be able to avoid paying taxes and stick ordinary shareholders with the bill, a practice he called "abhorrent to investors."
New efforts to combat insider trading are highlighted in a proposal that AFSCME has filed at SanDisk Corp. and Safeway Inc., which would ensure the companies follow best practices on prearranged trading plans for executives.
Separately, the union is asking Chevron Corp., Exelon Corp., Merrill Lynch & Co. and Valero Energy Corp. to adopt policies that would bar executives from selling company stock or exercising stock options during a share-buyback program.
"Say-on-pay" proposals that would give shareholders a say on CEO pay will be resurfacing as well. AFSCME said it has resubmitted such proposals at Affiliated Computer Services Inc., Bank of New York Mellon Corp., Citigroup Inc., Ingersoll-Rand Co. Ltd., Morgan Stanley, Wachovia Corp., and U.S. Bancorp, and submitted them for the first time at Allstate Corp., ConocoPhillips and Raytheon Co.
Another compensation proposal, filed at Robert Half International Inc., would limit payouts to senior executives in the event of a change in control or involuntary termination, a measure AFSCME said is meant to attack poorly designed contracts that provide lavish severance payments to CEOs.
On the governance front, AFSCME has submitted resolutions at Danaher Corp., Sunoco Inc. and Xerox Corp. that would require those companies to seat directors only if they receive the support of a majority of shareholders. It also is continuing to press proposals that would allow shareholders to put the names of their own choices for corporate directors on company-printed proxy ballots, known as proxy access, saving the time and expense of a full-blown proxy battle.
AFSCME won a court ruling in 2006 in a proxy-access case that pitted it against American International Group Inc., but the decision was called into question by a 2007 Securities and Exchange Commission rule clarifying that its staff will continue to side with companies seeking to block votes on such measures.
Despite the SEC's move, AFSCME has filed proxy-access proposals at Bear Stearns Cos., Countrywide Financial Corp., E*Trade Financial Corp. , and J.P. Morgan Chase & Co., businesses it says have poorly performing boards and mismanagement of holdings of securities tied to risky subprime-mortgage loans. Should the SEC staff agree that the companies may block shareholder proxy-access proposals, Mr. Ferlauto said the union would consider all options, including litigation.
In a related action, AFSCME said it has refiled a proposal at Apache Corp. that would allow shareholders to recoup proxy-solicitation costs from the company if one or more of the shareholder-nominated picks in a short slate of candidates is elected to the board.
