CEO Communications in a "Say on Pay" Era
And you thought annual shareholder meetings were tense in the past! With the moves of some major brands like Aflac, Blockbuster and Verizon to allow shareholders a nonbinding vote on the appropriateness of the executives' compensation packages, future annual meetings should be a field day for reporters looking for drama and controversy. The Columbus Ledger-Enquirer reports:
Aflac Inc.'s board of directors released Monday to shareholders its proxy filing with the U.S. Securities and Exchange Commission, which provides details on compensation packages for its top five executives.
This year's proxy also invites shareholders to cast a say-on-pay advisory vote, the results of which will be revealed at the company's May 5 annual shareholders meeting.
Of course Aflac made it clear that a nonbinding vote means its board is not required to change executive compensation based on the vote, even if it shows shareholder displeasure with the Chairman and CEO's package of more than $14.83M. But Aflac's move demonstrates transparency and a willingness to listen to shareholders' concerns and consider them when making these decisions. And it seems to signal a confidence that the packages the company is proposing are appropriate and are tied to the value these executives are creating for shareholders.
Verizon was the second U.S. company to adopt this approach, after Aflac. Blockbuster announced this past Tuesday that its board has authorized this type of advisory vote on compensation starting in 2009. The recent BusinessWeek article chronicling this issue pinpointed the issue precisely with this quote:
"The real question shareholders have raised is whether we are overpaying, in effect, for failure," says Stephen Davis, program director at the Millstein Center for Corporate Governance and Performance at Yale School of Management, and editorial director of Global Proxy Watch.
It goes beyond corporate governance and is part of the personalization movement in which shareholders -- and consumers in general -- feel they should have as much say in the workings of the companies whose stocks they own or products they buy as the executives and directors who manage them. You see it in blog posts and in comments about articles covering companies and their executives.
As this "say on pay" movement grows, it definitely raises the communication challenges of the corner office. In the past, a heated annual meeting typically revolved around a vocal activist shareholder who may or may not draw interest in the media. When the same individuals with the same rants appears year after year, even the most muckraking journalist has to temper his or her enthusiasm for giving them air time or space for their grievances. But when the entire block of shareholders have the opportunity to review executive compensation -- which formerly was something grumbled about but never addressed directly -- any journalist or blogger who attends the meeting will have a bonanza of sources for articles. This will particularly be true if the board chooses to ignore the shareholder's "say on pay" vote.
The CEO and Chairman's communication charter, therefore, is to accept this as the new reality and adjust accordingly. The brave ones like Aflac, which are taking it on already, will score big points with shareholders and with the marketplace in general. The ones who are agreeing to participate need to make sure their executives are ready for the scrutiny and open to discussing the value they are bringing and will be bringing to the company. If they aren't already doing extensive preparation sessions for their annual meetings, complete with mock Q&A sessions from the floor, they need to start this practice before their next annual meeting. If this is done correctly, the toughest and, in some cases, rudest questions they will field, will be in the mock session. Nothing on the actual day will catch them by surprise.
If the CEO doesn't already have some external visibility or tends to shy away from interviews, now is the time for him or her to get the training and support they need to be more visible. They will need to tell their story publicly and stand by it. It is best for them to have the shareholders and the public understand in advance what they bring to the table and why what seems like a large compensation package is appropriate because of the knowledge, connections and vision they offer to steer the company to greater growth and profitability.
The CEOs and Chairmen who embrace this approach and look their shareholders in the eye, with confidence and openness, will come out of this the best. The ones who fight the trend and continue to consider themselves beyond question regarding compensation or any other decisions will make the best copy for enterprising journalists.