I just received proxy materials for an annual meeting and was asked to vote on various things. The only strange one was on executive compensation where the recommendation of the shareholders is only ADVISORY and not binding. Is this common practice? It seems outrageous and like a good reason to sell the stock. Any advice/comments?
Joe,
Though the boards of publicly-traded companies talk about “their fiduciary responsibilities” and their commitment to “enhancing shareholder value”, the reality is they run the company for their own benefit and grant themselves hugely discounted stock options every chance they can and then use money that should go to R&D to buy back shares to goose the stock price, hence the value of their options.
Nearly every company is run this way, some more egregiously than others. So what you need to look at is the larger picture. As long as the company is making its money providing goods and services in a manner that isn’t inconsistent with your values and ethics, then worrying about them overpaying themselves is a pretty small matter. Such overpaying can be a tip off, though, that they are making other mistakes that will come back to bite them.
If you don’t like that the vote on pay is merely advisory, write or call the Investor Relations department and make a complaint, as well as try to find a way to rally other shareholders to protest.
Arindam
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Many companies now ask for shareholder approval. But its a token move. Compensation is up to the board which is controlled by the ceo.
Reality is you have to pay competitive rates if you want to keep good people. If not you become training ground and they leave.
Over paid executives compared to workers is a common complaint but so far no one has come up with a good solution. Taxing excess pay beyond some multiple of average worker pay has been suggested but pros are likely to maneuver around any barriers. Stock options. Deferred compensation. Perks. Lots of clever ideas out there.
Many companies now ask for shareholder approval. But its a token move. Compensation is up to the board which is controlled by the ceo.
Of course, in the old days, and even now, the board of directors are elected by, and therefore controlled by, the stockholders. The CEO is appointed by the board of directors. And that is still the law.
As a practical matter, most of the stock in corporations is held by large mutual funds and those funds do not respond well to the wishes of the shareholders who frequently do not even know what stocks are held by the funds. To make matters worse, many board members are CEOs of other corporations, so it goes: you scratch my back and I will scratch yours.
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Personally, I try always to vote my shares and vote as recommended by the company.
Proxy fights where an outsider tries to elect board members are rate. Most recent one was Exxon where three outside directors were elected.
How often does your mutual fund ask you how you want them to vote? They almost always support management unless there is a good reason not to. Usually with an outside leader asking for change.
The board may hire the CEO and can replace him at any time but usually CEO selects who sits on the board and knows how to reward their participation.
Most companies allow shareholders to present resolutions on issues that concern them at the annual meeting. And you can ask questions from the floor.
Have you ever tried nominating a board member? Good luck!!