The Shareholder Resolution
Campaign
2000-2001
Throughout the 1990s, CEOs have enjoyed upward spiraling compensation while the pay of average workers has stagnated. Since 1990, average worker pay has increased 32%, just slightly more than inflation, while CEO pay has risen 535%.
Our resolutions seek to restore a corporate social fabric that has been tattered by frequent downsizings and by compensation policies that offer a small number of leaders boundless rewards, while undervaluing the contributions of the broader workforce.
1. Freeze CEO Pay During Periods of Downsizing and Cost-Cutting
Despite record corporate profits during the 1990s, layoffs have continued at high levels, in large part due to large corporate mergers. A study completed by the American Management Association concluded that only about half the companies that undertake restructuring activities, including employee downsizings, experience any long-term improvement in earnings following the restructuring. Still, corporate executives have commonly received large compensation increases almost immediately following cost-cutting announcements. We believe that in a shared enterprise, both the rewards and sacrifices should be spread among all employees. A system that rewards executives while asking all other employees to sacrifice leads to poor morale and other related problems. This resolution calls for a pay and option freeze for executives in years when more than 5% of workforce or 1,000 employees are laid off.
Focus Companies:
2. Executive Compensation Review Report
Corporate board compensation committees bear the responsibility for evaluating the performance and setting the pay of chief executive officers. The report of the compensation committee is published each year in the company’s proxy statement. This executive compensation review would call upon corporate boards to consider broader parameters when setting CEO pay. These might include such things as freezing CEO pay during periods of significant downsizing or considering employee or customer satisfaction surveys in determining executive pay.
Focus Companies:
3. Severance Package Review
One of the justifications for large executive pay packages is the huge risk CEOs take in undertaking their responsibilities. If they fail, they lose their jobs. Unfortunately, all too often, CEOs dismissed for poor performance leave with severance packages valued in the tens of millions of dollars. Part of these payments represent pre-negotiated arrangements that are part of the departing executive’s employment agreement, but the recent trend is to throw in additional payments above and beyond the terms of the employment agreement. Departing Coca-Cola CEO Ken Ivester received an additional $66,000 a month in monthly payments beyond his normal pension. Fired Mattel CEO Jill Barad not only had her $3 million mortgage loan from the company forgiven, but then asked for – and received – reimbursement for the taxes paid on the amount of the forgiven loan. Our shareholder resolution calls for companies to review and justify their CEO severance pay policies.
Focus Companies:
- Coca-Cola (resolution withdrawn)
- Mattel (resolution withdrawn)
4. Broadening Ownership Resolutions
The pay gap between top CEOs and the average American worker widened to 475:1 in 1999, according to Business Week. The largest factor in this wide gap has been the explosion of executive stock options. Several studies have concluded that firms with significant employee ownership grow faster and have lower turnover. A recent study by Hewitt Associates and the Kellogg School of Management at Northwestern found that between 1971 and 1991, companies with broad-based employee ownership had total stock returns that averaged 6.9% higher in the four years after an employee stock ownership plan (ESOP) was set up than similar firms without ESOPs. This resolution focuses on companies where equity compensation has been narrowly distributed to a small group of corporate leaders. Several of the companies also operate in industries known for employing low-wage workers or whose business substantially involves providing services to low-income consumers while they pay their executives handsomely. In these cases, we seek to point out the problems caused by the narrow concentration of wealth. Our resolution asks each company to limit the percentage of stock options granted to any one executive to no more than 5% and to the group of executive officers to no more than 10% of total options granted in a single year.
Focus Companies:
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