Majority vote issue draws the most proxies

According to Institutional Investor Services Inc., Rockville, Md., the most proposals submitted for shareholder votes this year are:

cproviding for majority vote for election of directors: 130, compared with 89 in 2005 and 12 in 2004;

cdeclassifying boards: 76, compared with 78 in 2005 and 59 in 2004;

ctying executive pay to corporate performance: 57, compared with 82 in 2005 and 63 in 2004;

cseparating positions of chairman and chief executive: 42, compared with 55 in 2005 and 56 in 2004;

creducing corporate bylaw amendments to a simple majority vote instead of a supermajority of two-thirds or three-fourths: 36, compared with 27 in 2005 and 11 in 2004;

cproviding for more shareholder scrutiny of severance pay for executives: 28, compared with 35 in 2005 and 36 in 2004;

callowing cumulative voting: 25 vs. 26 in 2005 and 24 in 2004;

casking for a shareholder vote on poison pill anti-takeover measures: 25 compared with 54 in 2005 and 100 in 2004; and

ccapping executive pay: 12 vs. 23 each in 2005 and 2004.

Declines in submissions often mean more corporations have yielded to shareholders because of a proxy vote or in anticipation of one, although the cap on executive pay hasn't gotten major support from shareholders or corporations.

The $750 million pension plan for the American Federation of State, County and Municipal Employees, Washington, submitted a sweeping resolution that would give shareholders an annual advisory vote on executive pay. AFSCME submitted the proposal at US Bancorp, Merrill Lynch & Co., Bank of America Corp., Home Depot Inc. and Countrywide Financial Corp. The proposed vote would be advisory, serving to persuade companies to change pay policies shareholders believe are excessive or not in line with business strategy and to encourage sustained performance in the best interest of shareholders, according to an AFSCME statement.

Richard C. Ferlauto, AFSCME director-pension and benefit investment policy, said investors, especially mutual funds, "should vote yes on the AFSCME proposal to establish a process for shareholders to be able to vote up or down on executive pay packages."

"The vote would be advisory," Mr. Ferlauto said. "But it would send a strong signal to the compensation committee on whether it was following shareholder wishes."

AFSCME and the Corporate Library, a corporate research company, released a report in March critical of large mutual funds' proxy voting that often supports corporate management on executive compensation proposals.

A shareholder vote on the type of executive compensation disclosure AFSCME is seeking in its proposals became a requirement of companies in the United Kingdom in 2002 and Australia in 2004, according to the statement. In 2005, the Australian Council of Superannuation Investors recommended its members vote against remuneration reports at 35 companies, according to the AFSCME statement.

AFSCME was one of the leading investors in the 2003 effort to provide shareholder access to the corporate proxy ballot to nominate directors. Such moves prompted the Securities and Exchange Commission to propose a rule, on which the SEC has never voted.

The $558 million United Brotherhood of Carpenters and Joiners of America Pension Fund, Washington, filed a proposal calling for adoption of a senior executive compensation standard based on superior performance. Financial or stock performance would be benchmarked against that of a peer group of companies for annual bonuses and long-term equity compensation. Executives would receive the rewards only when corporate performance exceeds the average performance of the peer group.

The proposal was filed at 23 companies, including 3M Co., Abbott Laboratories and E.I. du Pont de Nemours & Co.

The first vote will come up April 20 at Black & Decker Co., Ms. Westcott said.

Although poison pill proposals are in decline, a pending lawsuit against News Corp., New York, over its anti-takeover measure shows the concern activist shareholders have over corporate governance measures adopted as policies compared to bylaws, Ms. Westcott said.

"When it is just a policy, they (directors) can rescind it," Ms. Westcott said. "There is no legal teeth to it."

A dozen pension funds and other institutional investors are suing News Corp. over breaking the company policy, which called for a shareholder vote on its poison pill.

Proposals for majority vote on the election of directors have been defeated this year by shareholders at three companies — Analog Devices Inc., Ciena Corp. and Hewlett-Packard Co. However, prior to the vote, the three companies adopted majority-vote policies, which Ms. Westcott believes deflated the efforts of the shareholder proponents. All three resolutions, filed by the carpenters' pension fund, called for even tougher majority-vote rules than the companies had adopted.

"There is no legal enforceability" with policies on majority voting, Ms. Westcott said.

An update of an earlier study by Neal Gerber Eisenberg LLP, a Chicago-based law firm, found 116 companies now have some kind of majority-vote provision.

Union pension funds continue to take the lead in filing shareholder proposals. The carpenters fund filed 107 proposals this year; AFSCME filed 26.