Potential Embarrassment
Many large institutional asset managers have governance teams that speak with portfolio companies about matters including compensation and board composition. Still, it’s fund managers who typically decide how to vote, and they aren’t always required to heed their colleagues’ advice.
Gauging the sentiment of trillion-dollar asset managers can be helpful to companies trying to determine whether a shareholder resolution will win backing from other investors. Disagreements with large shareholders can result in rejections during nonbinding votes on executive compensation, usually held annually, which can embarrass directors and draw the attention of activist investors.
Still, some compensation advisers caution that the votes at Tesla and Axon shouldn’t be seen as a tectonic shift. Musk, 47, and Smith, 48, who built and nurtured the companies from their infancy, may end up working for free if they fail to achieve their lofty targets -- a deal that may be less appealing to a CEO hired externally. Not every firm has growth prospects that support that kind of compensation structure.
Other, far smaller special grants have caused significant shareholder pushback. Almost half of votes cast at International Business Machines Corp.’s annual meeting in 2017 rejected a pay program that included a controversial set of stock options for CEO Ginni Rometty.In November, Oracle Corp. said it would revamp compensation for its three top executives -- Chief Technology Officer Larry Ellison and co-CEOs Mark Hurd and Safra Catz -- and grant them large blocks of options tied to performance goals. More than half of investors rejected the program.
“While some large shareholders might endorse” large awards, that shouldn’t be seen as a blanket approval for boards to replicate those, said Ira Kay, a managing partner at Pay Governance, an executive-pay advisory firm. “At each one, you still really have to hold your breath and see if it passes.”
This article provided by Bloomberg News.