Risk & Governance Weekly

In Brief

Aflac Will Hold First “Say on Pay” Vote in 2008

The first U.S. shareholder vote on executive pay will be in 2008, instead of 2009, after Aflac agreed to move up its vote. 

The Columbus, Georgia-based insurer, which announced in February that it would start holding an annual advisory vote on executive pay practices in 2009, said this week that it had decided to hold the first vote at its next annual meeting in May 2008. Aflac originally planned to wait until shareholders had three years of compensation information under the Securities and Exchange Commission’s 2006 pay disclosure rules, but the firm then concluded that two years of data would be sufficient for investors to vote on its pay practices.

“We believe that our shareholders have embraced the expanded disclosure on executive compensation and it gives them the information they need to make an informed decision as they weigh pay versus performance,” Dan Amos, Aflac’s chairman and CEO, said in a Nov. 14 statement. “Aflac has a long history of generating strong returns for its shareholders and we remain committed to being transparent and responsive to our owners.”

So far, one other U.S. public company, Verizon Communications, has agreed to hold an advisory vote on pay in 2009. Verizon took this step after a shareholder proposal seeking such a vote won majority support at the company’s annual meeting in May. More U.S. companies may follow suit after “say on pay” proposals won a majority of votes cast at seven other firms this year.

Meanwhile, investors have started to submit “say on pay” proposals for the 2008 season. This week, the Connecticut Retirement Plans and Trust Funds announced that it had co-filed advisory vote resolutions at Merrill Lynch and Citigroup.

The Merrill proposal, which is co-sponsored by the Unitarian Universalist Association of Congregations, notes that the banking firm’s top six executives received $287 million in total compensation in 2006. The Citigroup resolution, co-sponsored by the American Federation of State, County, and Municipal Employees, notes that the company’s top five officers received more than $78 million in total 2006 compensation. Both investment banks recently ousted their CEOs after reporting significant losses from mortgage-based securities.  --Ted Allen  

CFOs Support Proxy Access, Independent Board Chair, Survey Finds

A majority of chief financial officers at over 200 U.S. firms believe that shareholders should have greater access to the proxy and that the positions of CEO and board chairman should be separate, a new survey says.

Of the 213 CFOs who responded to a survey by Grant Thornton, an international tax and audit advisory firm, 78 percent said that companies should have a board chairman who is independent from the CEO.

Sixty-six percent of finance chiefs said that shareholders in public companies should have the ability to nominate directors to appear on management proxy statements. This view differs from the positions taken by the Business Roundtable and other corporate advocates, which have opposed proxy access.

More of the responding CFOs (23.5 percent) believed that their company CEOs were overpaid than believed they were underpaid (15.8 percent), but the majority of finance chiefs (60.6 percent) said CEO pay was right on target at their companies.

These results are derived from a 28-item questionnaire given to CFOs at 55 public and 158 private firms with market capitalization ranging from under $100 million to greater than $5 billion.

The financial officers were less enthusiastic about recent audit reforms. A plurality of the CFOs polled (48 percent) think that the new accounting standards from the Public Companies Accounting Oversight Board and their accompanying guidelines on internal control reporting from the Securities and Exchange Commission (SEC) are not a significant improvement over previous rules.

According to the survey, 90.6 percent of the public company respondents and 75.2 percent of the private company respondents said that they already find current auditing standards too complex. Sixty-seven percent of all survey respondents said they would prefer principles-based standards that provide for the greater use of professional judgment. –L. Reed Walton