Beatles, Beckham and... bonus schemes

As shareholders around the world pore over thousands of ballots for this year's proxy voting season, the US will see its first-ever UK-style advisory vote on pay, when investors in Aflac, a mid-sized insurer, becomes the first US company to invite its owners to approve its compensation report. On Monday May 5th, shareholders will vote on CEO Daniel Amos' $14 million pay package, which in 2007 included a salary of $1.2 million, an annual cash bonus of $2.8 million, and the balance in stock, options, and deferred compensation awards."This marks a turning point in US practice, said Karina Litvack, Head of Governance and Sustainable Investment at F&C. "It is a signal that pay practices have spun out of control and are finally starting to be reined in.

US boards lack the inclination to restrain executive pay and impose some meaningful connection to performance, and unlike in the UK, shareholders are powerless to stop this. Unless the regulators impose a UK-style advisory vote on pay, we will have to rely on companies like Aflac showing leadership and voluntarily putting their compensation report to a vote." F&C will be voting For the Advisory vote on Pay proposal at Monday's meeting and welcomes the company's commitment to align pay with performance. "Aflac's clear disclosure of specific performance targets and its commitment to clawing back pay in the case of a restatement of accounts are exemplary and a key reason for our support," said Litvack. "It is worth noting that $14 million is not exactly hardship pay.

The point here is that investors understand that you have to pay good people to attract and retain them, and they'll be ready to support generous pay packages so long as they can also hold up a red card when management demands are not justified by performance." She continued: "We hope Aflac's move will reassure other US companies that opening up their pay practices to a shareholder vote is not the end of the world as we know it, but really just a common sense response to an untenable situation."

In a sign this may be catching on, Verizon Communications, which meets today, also announced it would be putting it compensation policies to an advisory vote, beginning in 2009. Verizon CEO Ivan Seidenberg is one of the best-paid CEOs in America, with a pay package putting him in the top 2 percent of US CEOs. "This will be interesting. The first step is to welcome the board's willingness to open its pay packages to scrutiny. Then comes the tougher question: beyond disclosure, does it win kudos for content? We are looking for remuneration practices that benefit shareholders and the CEO by driving superior performance, and the board will need to provide evidence of that," she said.

F&C has spent the last four years urging US companies and regulators to follow the UK's lead and introduce advisory votes on executive pay. It has written to over 600 US companies to urge them to do this voluntarily, and is active in industry working groups in the US, including the Roundtable on the Advisory Vote on Executive Compensation.

"The advisory vote on pay could turn into the UK's most influential export to America since the Beatles," concluded Litvack.