Kai Ryssdal: We go now to thousands of shareholders trying shake up the executive suite. This is the time of year when companies traditionally reveal how much their executives get paid.
A report out today shows average compensation for CEOs rose more than 10 percent last year. That's the second straight year of double-digit gains. It's also the second year shareholders have been able to vote up or down on executive pay packages. It's called "Say on Pay," part of the Dodd-Frank financial reform law.
So far this season, investors have given the thumbs down to a handful of companies -- most famously, Citigroup a couple of weeks ago. I should mention at this point that corporate boards of directors are under no obligation to actually comply with those votes.
But Marketplace's Jeff Tyler reminds us a surprising number of 'em do.
Jeff Tyler: The California State Teachers Retirement System -- a big institutional investor -- voted against the compensation package for Citigroup’s CEO.
Investment officer Aeisha Mastagni says the vote was about more than the size of Vikram Pandit’s $15 million payday.
Aeisha Mastagni: Seventy percent of his annual bonus was discretionary. You know, it was not tied to any kind of performance.
Like a rise in the stock price. A CEO’s salary is often a fraction of the total compensation. In order to justify big bonuses and stock options, shareholders want executives to hit financial benchmarks.
Citigroup says it takes the vote seriously and will consult with shareholders to understand their concerns.
When ‘Say on Pay’ votes started last year, skeptics doubted that companies would take any action. The vote is non-binding. Stephen Davis studies compensation at the Yale School of Management. He says, surprisingly, the tooth-less vote has some bite with board members.
Stephen Davis: People thought that boards would have a pretty high tolerance for pain and rejection. Turns out, they don’t.
Robin Ferracone: When I get asked the question, Is ‘Say on Pay’ having an effect or not, I think the answer is a resounding ‘yes.’
Robin Ferracone is an executive compensation consultant.
Ferracone: When companies do get a ‘no’ vote, there’s lots of evidence out there that those companies did quite a bit to change their compensation systems in order to turn that around and get a ‘yes’ vote.
Consider Cincinnati Bell. Last year, shareholders overwhelmingly rejected $8.5 million in compensation for the telecom company’s CEO. In the year since, the company cut his pay by more than $2 million.
Carol Bowie is with ISS -- Institutional Shareholder Services -- which advises investors about these votes. Last year, ISS recommended against the pay at Cincinnati Bell. But this year, it supported the company.
Carol Bowie: They made a number of changes to their pay program, making it somewhat less discretionary.
Earlier this week, shareholders voted in support of the compensation package at Cincinnati Bell.
Clearly, institutional investors are exerting more influence over pay. But individual investors are also starting to challenge the money shelled out to the boss. People like Mary-Pat Tifft. She’s worked at Walmart for more than two decades and owns 498 shares of the company. Unhappy with executive pay, Tifft and some co-workers got a proposal put on Walmart’s ballot this year to toughen standards.
Mary-Pat Tifft: The board has lowered the targets on the CEO’s bonuses formula for the last five years in a row. So their big bonuses continue to be granted, at the same time, the company isn’t really… you know, their performance is declining.
To get the word out, Tifft will throw a kind of party.
Tifft: We are having proxy parties.
At her proxy party, Tifft will try to persuade others to hold executives accountable.
Tifft: I’m thinking, ‘How many other people aren’t sure what this is?’ So we’re going to be trying to explain to them, as a shareholder, you own part of this company, and to vote is your right.
In a statement, Walmart says its financial performance is above average for a S&P 500 company. And Walmart defends its compensation packages.
Shareholders will put it to a vote at the annual meeting next month.
I’m Jeff Tyler for Marketplace.