A substantial minority of the respondents to the survey, however, indicated that they would likely play both the yellow and red cards in year one if they have concerns over compensation.
Boards will encounter a slew of other pay-related shareholder proposals as well. Proponents will repeat successful campaigns seeking to eliminate tax gross-ups and golden coffin provisions and to require shareholder approval of lucrative severance arrangements. Repeat proposals will push for a longer-term focus via the adoption of bonus banks at firms with large annual bonus plans and hold-thru-retirement requirements. First-time compensation proposals will seek to eliminate accelerated vesting under equity plans and to prohibit hedging and pledging of executives’ longstock positions. Another new proposal targets boards with multiple sitting chief executives serving on pay panels.
Beyond activism, the U.S. Treasury Department, the Federal Reserve and Pay Czar Kenneth Feinberg (who appears on CNBC more often these days than Mad Moneyman Jim Cramer) will continue to oversee—some say arbitrarily set—TARP recipients’ pay policies and practices. TARP fund recipients that have not paid back the funds will continue to have to go dancing with the (pay) czar.
Even the big banks—such as Goldman Sachs and Bank of America—that have repaid their debts to Uncle Sam may find it impossible to get out from under the TARP. Expect an entire new genre of shareholder proposals aimed at the big financial firms that have exited the TARP program.
The Final Score
In bowler jargon, the next-to-last frame is called the “foundation frame.” The ninth frame is said to be the one upon which the tenth frame is built. A strong foundation frame allows for the maximum scoring reward if the bowler fills the final frame with three strikes.
In many ways, 2010 is the Foundation Proxy Season. By next year, the world will be changed. It is likely that both say-on-pay and proxy-access measures will be mandated. Directors will undoubtedly face greater scrutiny and more challenges than ever before. As a result of these impending challenges, boards must use the 2010 season to lay a strong foundation that prepares them for the future. That means building relationships with investors and strengthening management teams and boardroom rosters.
Patrick McGurn is special counsel at RiskMetrics Group, ISS Governance Services. His colleague, Ted Allen, RMG’s director of publications, contributed to this article.