Taking on the Company
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PAUL SOLMAN: Shareholder Ann Sink owns a small piece of corporate America. Given the poor results of the last few years, she thinks most executives are overpaid. A low-key administrator at Duke University, sink spent a day traveling to Wilmington, Delaware, and was now going the last mile with a proposal for the annual meeting of one of America’s biggest firms. She wanted a lid on executive pay when a company’s stockholders and employees are suffering.
ANN SINK: I have a son who lost a job. I have a sister who was downsized. And I think a lot of folks today are really concerned with what they view as kind of runaway executive pay.
PAUL SOLMAN: Ann Sink’s target on this occasion: Bristol-Myers Squibb, the huge drug company long known for retail products like Excedrin.
SPOKESPERSON: My headaches have always been a pain in the neck.
PAUL SOLMAN: Of late, Bristol-Myers has had business headaches of its own.
ANN SINK: In 2001, there were about 2,300 people laid off, and in that same year, the top executives averaged bonuses of about $500,000 apiece, and that just is an example of the sort of excess that doesn’t make sense in the present economic climate.
PAUL SOLMAN: It especially doesn’t make sense, Sink thinks, because Bristol-Myers Squibb had to restate earnings downward, due to accounting irregularities that the government is now investigating, and that were so widely reported, they even made "Doonesbury."
ANN SINK: And report back to the…
PAUL SOLMAN: Owning at least $2,000 of stock entitled sink to propose changes in company policy.: Free executive pay when there were layoffs; allow shareholders to vote on severance packages; set a minimum ratio between the highest salary and that of the average worker. Sink’s proposal would now be put to a shareholder vote, as would be a proposal to link pay and performance, being brought by shareholder Steve Schneider.
STEVE SCHNEIDER: My proposal basically was trying to put a stop to what’s been happening in the last several years where Bristol-Myers underperforms its peer group, Bristol-Myers executives get multi-million dollar bonuses. This has happened for the last several years. From what I can see in this year’s proxy, in this year’s annual statement, I don’t see company management acknowledging that there’s anything wrong with the compensation system, that they still contend that there’s this wonderful link between compensation and performance and it escapes me. I see no such connection. None.
CAROL BOWIE: Individual shareholders, I think, are extremely angry.
PAUL SOLMAN: Carol Bowie, who tracks shareholder resolutions, says pay proposals have tripled in the wake of corporate scandals, and this year, a record number have passed.
CAROL BOWIE: I heard someone refer to it as the perfect storm this year. You have the markets, still very shaky. You have the economy shaky. I think all the factors are there that are just stimulating people to get up and finally open the window and say, "I’m mad as hell and I’m not going to take it anymore."
PAUL SOLMAN: Recent press reports, as in "Fortune Magazine," have helped stoke stockholder ire. According to "Fortune," the pay of the typical CEO Actually went up by 14 percent in 2002, a year when the return on the S&P 500 was down 22 percent. Carol Bowie found similar results.
PAUL SOLMAN: The median pay, total compensation package, was up…
CAROL BOWIE: Up 10 percent in 2002.
PAUL SOLMAN: Even though those companies in the aggregate surely had a worse year in 2002 than 2001.
CAROL BOWIE: Yes, no doubt about that.
PAUL SOLMAN: But recent events at American Airlines may be the most tangible evidence yet of a movement to bring CEO pay back to earth. In December, CEO Donald Carty asked American’s unions to take a $1.8 billion wage slash to stave off bankruptcy, suggesting that labor and management were in it together.
DONALD CARTY: There’s always a healthy skepticism of whether management is doing everything that they know how to do to fix the problem. Why is it always the employees first? And I think that that question has been a fair question by employees over the last 25 years in the airline business, and we were determined this time to demonstrate that wasn’t the case.
PAUL SOLMAN: But just as to deal was about to get off the ground, employees learned that Carty had secretly given himself and his top American executives multimillion-dollar bonuses and pensions irrevocable even in bankruptcy. Captain Gary Boettcher, who advised the pilots negotiating with Carty.
GARY BOETTCHER: He’s putting his arm around labor saying, "we need to do this together to get out of trouble, to save the company and make it viable in the future." At the same time, he’s got his other hand reaching in the back of our pockets, taking our money and our benefits and putting it in his own.
PAUL SOLMAN: When pilots, like Boettcher, and other employees learned of the secret pension deal, they balked. CEO Carty was actually forced to resign.
GARY BOETTCHER: It’s a precedent set in the… not only the aviation industry, but in corporate America. And we hope that all CEO’s across the nation will sit up and take note that the employee groups, stockholders, and the boards of directors are not going to sit back and allow this uncontrolled greed to go on.
PAUL SOLMAN: Meanwhile, armed with her proposal for Bristol-Myers Squibb, reluctant corporate gadfly Ann Sink approached her public debut at the Dupont Hotel. Our camera was told to wait outside, next to a fleet of limos for executives and board members, none of whom would be interviewed. While we manned the doors, the meeting progressed. Finally, Ann Sink took her turn at the mike.
ANN SINK: I want our company to use its creativity in leadership to think outside the box about executive pay, and to become a leader in charting a new course to the way American companies pay their executives.
PAUL SOLMAN: Sink’s three-minute proposal brought the loudest round of applause at the meeting, and the issue resonated with some shareholders leaving it.
PAUL SOLMAN: But do you think that there’s a real issue still about CEO pay?
SHAREHOLDER: Oh, yeah, definitely.
SHAREHOLDER: Absolutely, I’m retired from Bristol-Myers and my stock are way down.
PAUL SOLMAN: And yet, with regard to the executives?
SHAREHOLDER: They shouldn’t be getting the money. They should… more money should have gone into research and development. That’s why we are where we are today. It’s because of the CEO getting all that money and not enough going into R&D. Bad situation.
PAUL SOLMAN: Even some skeptical of management were skeptical elements of sink’s proposal, however.
PAUL SOLMAN: Ann Sink’s proposal included freezing executive pay at a time of corporate downsizing. Do you agree with that?
SHAREHOLDER: I don’t necessarily agree with that. There has to be some element of discretion. How that discretion is exercised is the issue. You need boards of directors to get more of a spine, you need institutional investors, the big ones, to make sure they exercise their power properly. And we as little shareholders can do very little to change it.
PAUL SOLMAN: For its part, Bristol-Myers Squibb gave us its response to sink’s proposal in writing. "Bristol-Myers Squibb’s executive compensation programs are based on a pay-for-performance philosophy, and a recent independent study confirmed that the company’s practices are consistent with that philosophy." And, the firm stressed, last year the top five executives didn’t get bonuses at all. In the end, Sink got 13 percent of the vote; Schneider, 12 percent– high numbers for new resolutions given that the biggest shareholders, institutions, typically vote with management.
CAROL BOWIE: The first time a proposal is submitted to a company, if it gets just over 3 percent, the SEC says that’s enough to allow it to be resubmitted the next year. So that’s the threshold that the SEC looks at as a respectable amount of support for a new shareholder proposal.
PAUL SOLMAN: More than respectable, meanwhile, was the recent vote at the English drug company Glaxo, where the CEO’s pay package was rejected by an actual majority. And here in the U.S., says Bowie, proposals to limit executive retirement deals have won majorities as well. And finally, in response, boards are getting tougher, too.
CAROL BOWIE: In this environment, I think boards recognize that they cannot tolerate these kinds of situations that shareholders simply won’t tolerate these kinds of situations; that shareholders simply won’t tolerate. And, of course, companies right now need to bend over backwards to reassure shareholders that it’s good to invest in their company.
SPOKESPERSON: I think the executive compensation in this country is badly broken and in need of fundamental change.
PAUL SOLMAN: All of which suggests that more companies may be answering to more proposals, like the one shareholder Ann Sink offered in Delaware.