Labor unions wage battle over CEO pay

Two years ago, while speaking before the Council of Institutional Investors, AFL-CIO President John Sweeney argued that labor unions must use their influence as shareholders to rein in chief executives' escalating pay.

"We must challenge the... widening gap between the pay of a handful of top executives and everyone else in American society," Sweeney told the coalition of public-employee, union, and corporate pension funds that collectively control some $800 billion in assets.

This year, the gloves came off. Union pension funds and union-related groups are flexing their muscles on Wall Street by filing a slew of shareholder resolutions seeking to curb, cap or control the compensation of the nation's corporate executives. They join other activists who have made executive pay a big issue in recent years. One success so far for the unions: UAL, which is employee-owned, agreed in January to a union proposal that will tie a portion of top executives' compensation to worker satisfaction, starting next year. "Labor has always been resentful of CEO pay, but now unions are becoming much more sophisticated in their objections and their presentation," said Alexandra LaJoux, editor of The Director's Monthly, the newsletter of the National Association of Corporate Directors in Washington, D.C. Not everyone agrees with the movement. "What we are really seeing right now is the cost of doing business," Ted Jadick, a partner at Heidrick & Struggles, said about spiraling salaries. "If you are looking for a top CEO, and you have to find that talent in an open and competitive marketplace, then you must pay the market price. That means offering competitive compensation." In 1995, nine union-related resolutions were filed with the Securities and Exchange Commission concerning executive compensation. This year, 23 proposals were filed. Such shareholder resolutions -- targeting skyrocketing executive pay, golden parachutes, and stock option packages -- are proposals that require approval by shareholders. One example: the AFL-CIO's Staff Retirement Fund, which wants to tie the price of stock options awarded to Dean O'Hare, the chairman and chief executive of Chubb, to the company's performance. O'Hare earned more than $2.8 million last year, including a bonus payment and other compensation, according to a 1999 executive survey in The Wall Street Journal. The AFL-CIO pension fund resolution maintains Chubb's chief executive could gain an additional $3.8 million from last year's grant of 99,250 stock options "by achieving a mere 5 percent annual shareholder return over the term of the grant." "We want to get at the fact that this company and others are giving out stock options no matter what the CEO does or what the company does," said William B. Patterson, the AFL-CIO's investment expert. "When the stock market goes up, they are rewarded regardless of their actions." Not surprisingly, Chubb and its compensation committee are opposed to the measure. In a written statement, the insurer argued that indexing, or linking O'Hare's stock options to company performance, would not be beneficial to shareholders. "Indexed options are rare among U.S. corporations," Chubb said in a statement. "The use of indexed options would depress and artificially add volatility to the corporation's earnings." Most shareholder resolutions rarely rally enough votes to pass. One reason: Shareholders tend to back management when companies are posting gains. Still, unions can take heart in the success of UAL employees. Stephen Sleigh, director of strategic resources for the International Association of Machinists in Washington, D.C., said United Airlines' unions spearheaded the drive to tie pay to worker satisfaction when it submitted a shareholder resolution demanding the changes as a way to gain more CEO accountability. UAL's union employees hold 60 percent of the airline's shares. "We filed a resolution, but the company agreed to it so we withdrew it," said Sleigh. "Since we hold a substantial number of shares, we were able to have a real dialogue... and senior executives agreed to it. It made sense to them." A UAL spokesman said the plan will also tie pay to customer satisfaction and company performance. This year, shareholders will be asked to approve several union- related resolutions. These include: * At Sherwin-Williams, stockholders through the Electrical Workers' pension fund have proposed that the board of directors seek shareholder approval for all executive officer severance pay agreements. The board opposes this proposal. * At Chiquita Brands International, a resolution filed by the Carpenters and Pension Annuity Fund of Philadelphia would curtail the repricing of stock options awarded to top executives. * At BankAmerica, shareholders through the Teamsters pension fund urge the board to adopt a policy that all board members be independent, with no professional or personal affiliation with the company or chief executive. Meanwhile, United for a Fair Economy, a Boston coalition of union and community groups, is co-sponsoring nine shareholder resolutions through its Responsible Wealth project, which is made up of 425 wealthy individuals. Eight of the proposals would tie chief executives' pay at companies to a multiple of the pay earned by their lowest paid employees -- a suggestion that shareholders will likely vote down. Responsible Wealth isn't expecting a victory this year. Its intent, a spokesman said, was to raise public awareness and, perhaps, provide the push needed to launch a populist movement. "We want to start a public debate on how much is enough," Scott Klinger, the director of Responsible Wealth, said. One of the group's resolutions would cap total compensation to executives at Citigroup to a multiple of the lowest-paid workers' total compensation. "This doesn't mean CEO pay wouldn't go up," noted Klinger. "It means Citigroup's chief executives couldn't make more than 200 times the lowest-paid workers. If the top executives wanted to make more, they would have to raise everybody's pay." Citigroup was an obvious target: Chief Executive Sanford I. Weill, who shares management of the company with John S. Reed, was the nation's highest paid chief executive last year. He took home $166.8 million in salary, bonus, stock options, and other compensation, according to the survey by The Wall Street Journal. In arguing against the measure, Citigroup said: "The proposal would require the board of directors to establish an arbitrary cap on the total compensation of the chief executive officers, thereby diminishing the significance of more pertinent factors, such as corporate and individual performance."

Copyright 1999
Provided by ProQuest Information and Learning Company. All rights Reserved.