Will Aflac’s say-on-pay open floodgates?

By Dominic Jones

ON Valentines Day, U.S. disability insurer Aflac showed its love for shareholder engagement when it became the first major U.S. company to agree to give shareholders an advisory vote on executive compensation — a so-called “say on pay” that shareholders in other countries already enjoy.

Aflac’s voluntary move could open the floodgates for similar agreements at other companies, mirroring the recent experience with majority vote proposals, which have now been adopted by more than half of the S&P 500 companies after just a couple years of strong shareholder campaigning.

Union expects more firms to follow

According to Institutional Shareholder Services’ 2007 proxy season watchlist, shareholders have filed say-on-pay proposals at 52 companies as of February 12. Many of these have been spearheaded by the American Federation of State, County and Municipal Employees (AFSCME) union.

AFSCME’s director of pension and benefit policy Richard Ferlauto told USA Today he believes other companies will now follow Aflac’s lead.

“The only question is not when or if, but how many,” he told the newspaper.

CEO: Helpful avenue for shareholder feedback

In a statement, Aflac Chairman and CEO Dan Amos said: “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.”

Aflac Chairman and CEO Daniel P. Amos

Aflac received a shareholder proposal from fund manager Boston Common, which withdrew it when Aflac agreed to allow shareholders to start voting on executive pay in 2009.

CEO Amos told USA Today that a key concern of the board is that shareholders will use the pay vote in an “emotional” way should the firm’s stock price be in a slump going into its annual meeting.

Strong support from shareholders

AFSCME last year filed proposals for a non-binding referendum on compensation at seven companies and gained an average of just under 40% support. The resolution was based on similar measures in the U.K., Sweden and Australia.

This year, investors such as the California Public Employees’ Retirement System (Calpers) have joined in asking companies for the advisory vote.

According to ISS, the language in some of this year’s proposals asks for shareowners to “to ratify the compensation of the named executive officers set forth in the proxy statement summary compensation table and the accompanying narrative disclosure of material factors provided to understanding the summary compensation table (but not the compensation discussion and analysis).”

Repeat of majority vote movement?

Last week, a study published by law firm Neal, Gerber & Eisenberg highlighted the rapid adoption of majority voting standards by U.S. companies, often done voluntarily.

More than 52% of the S&P 500 companies have adopted a majority vote policy, bylaw and/or charter provision, up sharply from less than 20% a year ago.

“The rate of change is striking, given that majority voting is not mandated by law or stock exchange listing standards,” said study author Claudia H. Allen.

By agreeing to allow an annual advisory vote on executive pay, Aflac may have set the wheels in motion for a similar movement on pay.

Earlier this month, the Financial Times reported that Pfizer, AIG, Schering-Plough, Colgate-Palmolive, Bristol Myers-Squibb and Tyco were part of a group of companies meeting with investors to discuss adopting similar pay vote practices.

Please Support Our Work
Email your friends about us. Subscribe to our paid publication Online IR Trends Quarterly. Get us to recommend improvements to your IR website (we're really good at it).