AFSCME Takes New Swipes at Exec Pay

This year's proxy resolutions include proposals to stifle special tax benefits, eliminate conflicts of interest in share buybacks, and bring more integrity to automatic share-selling plans.

A prominent activist investor has disclosed an aggressive slate of new shareholder resolutions for the 2008 proxy season, all designed in one way or another to redistribute executive compensation to investors.

One of the measures sought by the American Federation of State, County and Municipal Employees Pension Plan is a ban on tax gross-ups, company-paid reimbursements to cover senior executives’ tax liabilities on perks. AFSCME filed proposals with Nabors, American Express, Textron, CVS/Caremark, Northrop Grumman, and Clear Channel Communications, requesting that executives not be provided with any tax gross-up payments that are not available to other managers.

AFSCME also is taking aim at companies’ share-repurchase programs by proposing limits on insider sales: it wants to require executives at Merrill Lynch, Chevron, Valero Energy, and Exelon to hold their shares and options during a buyback. This would reduce the potential for conflicts of interest; for example, if a company embarks on a repurchase program at a time when the stock price is trending down or is down from its high point, as is typical, it raises questions when executives are willing to sell their shares at that price.

Finally, AFSCME is looking to plug a large loophole in 10b5-1 plans, which allow executives to sell their company stock on a regular, predetermined schedule and thereby avoid insider-trading violations. However, in practical terms these plans can be nearly moot, because there is no requirement that the preplanned trades be irrevocable. The proposal, filed at Safeway and SanDisk, is designed to ensure that 10b5-1 plans “are not abused” by codifying a set of 10b5-1 “best practices” that currently are not legally required, says AFSCME.

Meanwhile, AFSCME has made a wide array of familiar proposals. For example, it continues to be a leader in the fight for proxy access. Despite the Security and Exchange Commission’s November 28 decision to disallow shareholder-access proposals, the pension plan says it will continue to push for the right of shareholders to nominate directors. “Proxy access is designed to give shareholders a meaningful voice in board elections by opening up the director-nominating process,” it asserts.

AFSCME says it is focusing its proxy-access proposals on companies with poorly performing boards and mismanaged subprime securities, including Bear Stearns, JPMorgan Chase, Countrywide Financial, and E*Trade.

AFSCME has also been a leader in the so-called Say on Pay movement: it has resubmitted proposals seeking nonbinding shareholder votes on executive compensation at Affiliated Computer Services, Morgan Stanley, Bank of New York Mellon, Citigroup, Wachovia, U.S. Bancorp, and Ingersoll-Rand, and submitted first-time proposals to Raytheon, ConocoPhillips, and Allstate.

It also has submitted resolutions to Xerox, Danaher, and Sunoco requiring that directors be seated only if they receive the support of a majority of shareholders.

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