Boards Beware of Growing Executive Compensation Packages

by Anthony Galban

Some 25 years ago I attended a crowded and agitated shareholders meeting for a Fortune 500 company. During the meeting, a shareholder held up a large and colorful chart for the meeting attendees to see. The chart showed the change in the CEO's compensation compared to shareholder return over the past several years. Impressively, the CEO pay had grown by roughly 300%. As I struggled to see the second line charting shareholder return, I noted the flat line running along the x axis indicating little to no growth for shareholders. When challenged by this graph, the CEO stated that his pay was "comparable" to what other Fortune 500 CEOs were paid. The shareholder proposal to freeze the CEO's compensation got a surprising 30% of the vote and both the Board and management were visibly shaken.

This story captures many of the dynamics of the "say on pay" issue that remain important to this day. This topic can be an emotional one for shareholders and Boards, and emotions can be both volatile and unpredictable.

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