CONTINUING COVERAGE
AJC reporter Russell Grantham has been tracking what Georgia’s major public companies pay their top executives. Today, Grantham reports on how shareholders voted on the pay packages at this year’s stockholder meetings.
Most of Georgia’s large public companies passed with flying colors this year on the so-called “say-on-pay” votes at annual shareholder meetings.
So far this year, 22 out of 27 Fortune 1000 firms in Georgia have gotten approval ratings above 90 percent from investors.
But a handful of other Georgia firms where shareholders voted this year didn’t fly their banners so high afterwards. Three companies with huge CEO pay packages or big raises saw a significant drop in shareholder approval this year, and one failed its shareholder vote.
* Gentiva Health Services, an Atlanta-based home health provider, failed its say-on-pay vote for the second year in a row. So far, it is one of only five firms in the Russell 3000 index to fail more than once, according to Sembler Brossy, a Los Angeles-based executive compensation consulting firm.
* Atlanta beverage giant Coca-Cola saw a sharp drop in its shareholder “yes” votes, to 77 percent from 97 percent last year. Institutional Shareholder Services, an influential shareholder advisory firm, had recommended a “no” vote, calling Chief Executive Muhtar Kent’s $30.5 million pay too high in light of Coca-Cola’s lagging stock performance last year. ISS also said top executives’ performance targets “lack rigor.”
* Two other Atlanta companies also saw significant drops in shareholder approval. Clothing maker and retailer Carter’s got an 83 percent approval, down from 96 percent in 2012, after its CEO got a 63 percent raise. Rent-to-own furniture retailer Aaron’s got a 79 percent approval, down from 97 percent, after a new CEO stepped in with a 45 percent raise over the previous chief.
In an emailed statement, Coca-Cola said “a strong majority of our shareowners again registered support for our compensation programs” at the annual say-on-pay vote. But the company said it also responded to shareholders’ and their advisers’ concerns by agreeing to award smaller bonuses in the future when its stock return lags.
Typically, the vast majority of companies pass the non-binding votes on top executives’ compensation by wide margins, which are weighted by the number of shares voted, rather than by how many shareholders vote one way or the other.
But when the positive votes drop below the 70-80 percent range — experts’ opinions vary on the cut-off point — most corporate boards pay attention.
“It’s a major item,” Todd Sirras, managing principal at Sembler Bossy, said of the say-on-pay votes. “It’s like when your wife asks you to do something. It may be non-binding, but you have to listen to it.”
Gentiva Health Services said it reached out to most of its large shareholders before its annual meeting last month. Their input plus the vote results will be “key considerations” in its pay decisions, the firm said in emailed responses to questions from the AJC.
“Obviously, this is not where we want to be as a company,” Gentiva said.
Gentiva’s stock price and profits had plunged after it and several other home health services were the subject of Congressional hearings on possible Medicare fraud. The U.S. Securities & Exchange Commission also investigated, but wrapped up its inquiry late last year with no enforcement action.
Gentiva CEO Tony Strange took a 23 percent pay cut in 2011, to $4 million, and a 43 percent pay cut last year, to $2.7 million.
Gentiva said its stock has since rebounded about 300 percent from its lows in 2011. It hopes to address shareholders’ concerns by adding longer-term performance measures and other formal controls on its executives’ pay.
“We have listened to our shareholders and have already decided to change three features of (our) compensation programs – and we will continue to listen to their feedback going forward,” the company said.
Nationwide, only 27 firms have failed so far this year out of 1,384 that have held say-on-pay votes, according to a recent count by Sembler Bossy.
The say-on-pay votes have been a required feature of public companies’ shareholder meetings since 2011, under the federal Dodd-Frank financial reform act. Congress enacted the law after the 2008 financial crisis and years of controversy over rising CEO pay and corporate scandals. The votes are non-binding and must be held at least every three years.
Three of Georgia’s 31 Fortune 1000 firms, including UPS, hold the say-on-pay votes every three years, and didn’t have a ballot this year. Delta Air Lines’ shareholders meet later this month, and haven’t voted yet.
Since the votes began three years ago, Sirras said, many companies first eliminated hard-to-justify pay items, such as paying tax bills on executives’ perks. Then more firms increased their discussions with big investors and proxy advisory firms like ISS. They also beefed up disclosures on their compensation methods and philosophy, and tied executives’ stock and bonus awards more closely to the companies’ financial performance.
Now, most companies are “fine tuning” those performance measures and talking to their largest shareholders more frequently, Sirras said. He believes such measures are slowing the rapid rise of top corporate executives’ pay and thinning the ranks of CEOs getting paid $30 million and up.
“The number of CEOs making really large pay is coming down,” he said.
At companies that got lower say-on-pay votes, boards of directors likely are now canvassing large investors like pension funds and mutual fund managers for their concerns, he said. They’re also thinking about how to re-tool top executives’ pay plans to avoid another shareholder rebuke, he said.
“This has really changed the conversation in the board room,” he said.
Indeed, some of that conversation played out in public — or at least in company filings to the SEC — ahead of some Georgia companies’ annual shareholder meetings.
Before Coca-Cola’s say-on-pay vote in April, ISS had slammed the firm’s generous executive pay as a “performance disconnect.” CEO Kent’s pay was more than double the typical head executives’ pay at Coca-Cola’s own hand-picked pool of benchmark firms, the proxy advisory firm noted. But Coca-Cola’s stock gains last year were “mediocre” compared to the overall market, ISS added.
Likewise, ISS said, Coca-Cola top executive’s performance targets to win bonuses “lack rigor and persistently pay out significantly above target, while long-term (stock) awards have increased in value, even as performance goals have been reduced.”
A few weeks before the shareholder meeting, Coca-Cola responded with an SEC filing and letter to its shareholders. The company said it would cap executives’ bonuses this year if its stock return lags the Standard & Poor’s 500. It also said it’s looking into setting a similar cap in future years if the company’s stock performance lags.
Despite the changes, Coca-Cola shareholders’ support dropped noticeably in April’s say-on-pay vote regarding last year’s pay package.
Coca-Cola said its board of directors will consider those results, as well as responses from its “long-standing shareholder outreach program,” and has already agreed to make changes. “Our compensation committee always considers feedback from our shareowners as they develop compensation policy and programs,” the company said.
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