Aflac is a leader in 'say-on-pay'

Will hold advisory votes on CEO pay

Aflac said last week that it would become the first major U.S. company to give shareholders an advisory vote on executive compensation packages, bolstering investor groups that have vowed to push companies to change their governance practices at annual shareholder meetings this spring.

Aflac, the world's largest seller of supplemental health insurance, said it would allow shareholders a nonbinding vote on its corporate pay practices beginning in 2009 -- the first year that the company's proxy statement will contain the three years of compensation data required by the Securities and Exchange Commission's new disclosure rules. Aflac made its announcement after a proposal last year by one shareholder, Boston Common Asset Management.

"They're an early adopter," said Richard Ferlauto, director of investment policy at the American Federation of State, County and Municipal Employees, which supports the so-called say-on-pay resolutions. "We expect others will follow."

Such proposals are among the most controversial of the hundreds this year by major shareholders, who are emboldened by public furor over outsize executive compensation. Proponents say that even though the votes would be nonbinding, they would pressure companies to change their compensation policies.

At least 50 companies will have votes on say-on-pay at shareholder meetings, up from seven last year, according to Institutional Shareholder Services, a proxy advisory firm in Rockville, Md.

Other closely watched resolutions include a proposal to allow shareholders to run opposing board candidates and another to tie executive pay more directly to corporate performance. Many of the companies targeted are in the hot seat over executives' salaries or the practice of back-dating options.

Home Depot, still smarting from controversy surrounding the lucrative exit package given to its former chief executive, Robert L. Nardelli, last week invited an activist shareholder to join its board, helping to avert a potentially nasty proxy fight. Dozens of prominent companies, including Lehman Bros., Honeywell and Wells Fargo, have agreed to change how directors are elected.

ISS, the proxy advisory firm, said that since 2003, when investors began pushing for election by a majority of shareholder votes, about 200 companies have adopted some form of majority voting.

"I think 2007 represents something of a tipping point," said Stephen M. Davis, a fellow at Yale University's center for corporate governance. "Smart companies see the writing on the wall."

Still, some corporations remain unyielding. So far this year, companies have successfully sought the SEC's approval to keep at least 40 of the 630 corporate governance-related proposals submitted by shareholders from coming to votes, according to ISS. Dozens more are trying.

Companies say that although they have worked with investor groups to ensure best corporate governance practices, some proposals focus on narrow agendas that are costly and distracting to board members.

"It goes counter to what should be the fundamental question: What are the systems of governance in place that assure companies can grow and create more jobs and create greater shareholder value?" said John J. Castellani, president of Business Roundtable, a Washington, D.C., association of chief executives of major U.S. companies. "We would rather have shareholders focus on shareholder value."

Hewlett-Packard, the computer maker under investigation for using private investigators to obtain personal phone records, has satisfied shareholder concerns about disclosure of political contributions but tried to exclude a proposal that would allow dissident shareholders to run board candidates. The SEC recently declined to act on HP's request to keep the measure off the ballot, and shareholders are scheduled to vote on it at a March 14 meeting.

An HP spokesman declined to comment. In the company's proxy statement, the board of directors recommends a vote against the proposal, in part because its approval could lead to "the election of 'special interest directors' who represent the interests of the stockholders who nominated them, not the interests of all HP stockholders."

AT&T has sought guidance from the SEC about omitting from its proxy ballot a proposal to allow an advisory vote on corporate compensation practices.