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insurer seeks shareholder opinion on executive compensation
February 15, 2007. Columbus, Georgia based Aflac Inc., a supplemental life and health insurance firm, announced on February 14, 2007 that it will seek shareholders opinion on executive compensation - through a non-binding vote.
In its news release Aflac states: "The board of directors set 2009 as the effective date because it will be the first year that executive compensation tables in the proxy statement will contain three years of data that reflect the Securities and Exchange Commission's new disclosure rules.
" 'Our shareholders, as owners of the company, have the right to know how executive compensation works,' said Aflac Chairman and CEO Dan Amos.
" 'We have also followed best practices in corporate governance and maintained a positive brand and image for our company. We believe that providing an opportunity for an advisory vote on our compensation report is a helpful avenue for our shareholders to provide feedback on our pay-for-performance compensation philosophy and pay package.'"
The vote will lack teeth and the announcement seems to have more PR value than real change (It has been given wide news coverage in the US). Nevertheless, it is a first step, even if tentative and small, in giving shareholders a limited voice in executive compensation.
board compensation committees face increasing criticism
At the 2004 Annual General Meeting of Berkshire Hathaway - which attracted nearly 20,000 attendees - Warren Buffett, Chair, and Charles Munger, Vice Chair, strongly criticized the board process used to determine executive compensation. "The typical large company has a compensation committee," said Buffett. "They don't look for Dobermans on that committee, they look for Chihuahuas..., Chihuahuas that have been sedated."
Buffett has criticized lavish pay packages and the "lapdog behavior" of directors, calling the situation an "epidemic of greed."
In a letter to shareholders that same year, Buffett wrote, "(If) Corporate America is serious about reforming itself, CEO pay remains the acid test... The results aren't encouraging."
Many shareholder groups and corporate governance reform advocates have also raised the issue and despite the outcry, CEO compensation packages have continued to skyrocket. The Sarbanes-Oxley legislation in the US has forced many CEO's and board to reluctantly disclose the extent of the compensation packages.
The result has been a two-pronged attack on the critics.
The CEO's have a champion for their cause within the US administration. Treasury Secretary Henry Paulson is working hard to dismantle the regulatory framework provided by Sarbanes-Oxley. Some CEOs have also launched an attack against corporate governance reformers. As part of his tirade, IAC CEO Barry Diller, listed as the highest paid CEO in 2005, called corporate governance practitioners "birdbrains" (follow link below).
Also see:
Spotlight on CEO Compensation
CEO calls Governance Researchers Birdbrains!
Sarbanes-Oxley Legislation News & Views