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Shareholders get say on CEOs' pay

Steven J. Ross earned $78.1-million in 1990, but that didn't make him generous. Last summer, his Time Warner Inc. laid off 600 employees to help pay off debt incurred in the merger that created the communications giant.

On Thursday, the federal government proposed rule changes that could for the first time give outraged shareholders of any public company a chance to have their say on executive pay and stock packages like those earned by Ross.

Securities and Exchange Commission (SEC) chairman Richard Breeden's two-part plan was seen as a major victory for a growing movement that argues executive pay must be reined in if the United States is to compete globally.

The government isn't quite throwing the keys to the kingdom to the masses. Breeden's first proposal will allow shareholders to be heard only as advisers. A reinterpretation of an existing rule, that change takes place immediately.

"Such votes will be advisory only, and must be worded as such," Breeden said at a news conference in Washington. "Hopefully, this decision will bring a market solution to a market problem."

The second part of Breeden's plan, which must go through a complicated approval process, would require much clearer explanations of compensation packages.

Current practice allows for murky arithmetic, particularly with incentive plans tied to the share price, called stock options. (Time Warner officials dispute the stock-option calculations reported in the pay figure for Ross, their joint chief executive.)

Executives at big public companies typically receive three kinds of pay: base salary; a bonus tied to short-term profit targets; and stock options that offer executives a right to buy shares at a fixed price over a stated period. The executive does well if the stock price goes up. Stock options are usually the basis of the biggest pay packages.

Outrage has been festering for years over executive compensation, from the factory line to business schools to Congress.

Yet in most cases, shareholders have had only an indirect voice through the company's board of directors in determining executive pay. While board members are elected by shareholders, they often are nominated by management.

Executive pay is a hot topic on the campaign trail in New Hampshire. The issue became particularly charged after President Bush's trip last month to Japan, where he traveled with a gang of U.S. bosses seeking trade concessions.

After the trip, attention focused on the American executives' pay. It was widely reported that they enjoyed an average salary during the recession last year of $3.4-million, six times the average for their Japanese counterparts.

Chief executives' pay soared through the 1980s as the economy appeared to boom. When recession hit in 1989, pay kept going up _ even as many corporate performances went into the tank.

Companies respond there is a shortage of good leadership to run public companies in tough times. Nevertheless, the topic makes executives uncomfortable, to say the least.

"I'm aware in some situations of abuses by public companies with executive compensation," said A. Timothy Godwin, president of Clearwater-based Tech Data Corp. "We're very conservative here."

David A. Henwood, research director for Raymond James & Associates Inc., a St. Petersburg-based brokerage, said he didn't want to risk saying something indelicate to a reporter.

The SEC has been working for months on reforming the process by which companies distribute proxy statements for their annual meetings.

Breeden said the SEC is instructing 10 corporations, including International Business Machines Corp. and Chrysler Corp., that they may not exclude pending shareholder proposals in proxy materials for annual meetings.

In the future, shareholders will be allowed to submit advisory proposals. They won't have veto power over pay packages but they will be able to publicly express how they feel about them.

Gary Teblum, a Tampa securities lawyer, said even if executive pay does come up for a vote, big institutional investors typically have sided with management in past shareholder disputes.

"These votes may not fare better than other stockholder proposals, but you never know," Teblum said. "It's an issue that hits the pocketbook more than other issues."

Louis D. Putney, who has been frustrated as an anti-nuclear gadfly at Florida Progress Corp.'s shareholder meetings, said, "I expect someone presenting a resolution to limit salaries would receive similar poor treatment."

Breeden said the SEC also plans to study how corporations handle stock-option compensation plans on their books.

Critics like Sen. Carl Levin, D-Mich., say accounting rules allow companies to keep the true value of the option plans off the bottom line and away from shareholder scrutiny.

Levin has introduced a bill that also would give shareholders more input in policy changes on executive compensation and require better disclosure of executive pay.

Levin said he was "elated" with Breeden's proposals but was unsure if they would address all the issues covered in his bill. "We don't quite know yet what's going to happen," he said.

_ Information from Times library researchers Debbie Wolfe and Barbara Hijek and the Associated Press was use in this report.