Shareholder Votes on Exec Compensation (Say on Pay) Begin; What Will They Do? Case Study - Monsanto

Arguably the language business hated most (a tough choice)in the recent financial reform legislation was that in which Congress authorized shareholders to have a vote on executive compensation for public companies. Nell Minow, the leading voice in corporate governance, writes about the prospects for utilization of this new power and its implications in this article from BNet. Shareholders have been given a powerful tool to guide the companies in which they invest. The question is whether they will summon the will - and invest the time - to figure out how to use it.

One of the lesser known reforms to emerge from the financial crisis was that investors were given “say on pay.” Last year Congress passed a banking reform law that required publicly-traded companies to hold shareholder votes on executive compensations policies. Today the Securities and Exchange Commission approved the regulations.

The shareholder “say to pay” votes are non-binding–the Board of Directors are free to ignore even a unanimous vote against its executive pay plan–and the corporations can hold these votes as infrequently as once every three years. But, a no vote from investors still could prove deeply embarrassing.

At least I hope so. One of the best parts of my job is that I get to add to the embarrassment. I’ll be reporting on the best and worst handling of this requirement of the financial reform legislation. We begin with Monsanto, already termed by Jim Cramer “maybe the worst stock of 2010.”

Monsanto, whose annual meeting is today, not only asks its shareholders to approve an unacceptable pay plan– it also asks them to approve it for three years.

Monsanto has been rated high-risk by my firm for some time for a weak pay-performance link: CEO Hugh Grant receives a base pay substantially in excess of the amount deductible as a business expense and gets regular grants of stock options at the market price rather than grants tied to specific performance goals or indexed to the company’s peer group.

The compensation committee used one of my least favorite dodges — phony cuts in Grant’s compensation package. He supposedly has gotten zero bonus, but the committee more than made up for it a total compensation figure (including the grant date value of the restricted stock) that actually went up in 2010.

Adding insult to shareholder injury, the portion of compensation which the board considers as a long-term plan has a performance period of only two years, which can only be long-term if you happen to be a gerbil. Additionally, both the annual incentive plan and the financial goal restricted stock units are based on the same performance measures, rewarding Grant twice for the same thing. And the Board reduced goals — the targets they failed to hit were lowered from the 2009 targets and have been lowered again for 2011.

My hope is that shareholders will vote NO– on the pay plan and the once-every-three-year review.
And of course, they should vote no on re-electing these long-time members of the compensation committee because these people have done everything wrong.

Want to know who they are?

C. Steven McMillan, formerly of Sara Lee (Chair)

John W. Bachmann, Edward Jones

Gwendolyn S. King, Podium Prose

William Parfet, MPI Research

Many thanks to comp wizard Paul Hodgson of GovernanceMetrics International for helping me decipher the thicket of compensation data in the proxy.

Nell Minow, dubbed “queen of good corporate governance” by BusinessWeek, is a member of the board of GovernanceMetrics International (formerly The Corporate Library, which she co-founded).