Corporate Governance

Schering-Plough and Shareholder Input on Executive Compensation

By J. Robert Brown

We have been a bit remiss for failing to note sooner the post over at RiskMetrics on the Schering-Plough decision to make an effort at systematically improving communications with shareholders.  The company has done so by circulating a survey on director and executive pay in an effort to assist the compensation committee.  The survey will be distributed in the 2009 proxy mateirals and will be discussed in the CD&A for the 2010 meeting.  As the RiskMetrics post noted:

• This survey is evidence of our commitment to seek and consider shareholder input, as we did in 2006 with the shareholder survey on majority voting for directors said Pat Russo, Chair of the Nominating and Corporate Governance Committee of the Board, in the company's press release. Indeed, the company conducted a shareholder survey on governance issues after its 2006 annual meeting, which led to inclusion of two management proposals to amend the bylaws on the ballot for the 2007 meeting: one was to eliminate certain supermajority vote requirements, and the other was to elect directors by majority vote rather than plurality. The first proposal passed, but the second did not, although the board subsequently amended the bylaws to include a director resignation policy, triggered if a nominee in an uncontested election fails to receive support from a majority of votes cast.

The decision wasn't entirely based upon altruism or a desire to increase the level of communication.  Schering-Plough also apparently hoped to cut off movement by shareholders toward a more formal say on pay authority.  As the post noted:

• Schering-Plough has participated in the Working Group exploring the issue of say on pay and presumably is hoping to head off annual votes, although the company did not indicate how often it intends to conduct its pay survey. A questionnaire should give the compensation committee more nuanced information than an up-or-down vote and would take proxy advisors out of the equation but with anger growing daily about extravagant pay practices in the troubled financial sector, Congress may still have advisory pay votes on its to-do list.

Nonetheless, it is a worthy step that will increase managerial awareness of the views of shareholders.  It is probably the case that any number of shareholder proposals could be prevented through increased dialogue between management and shareholders.

Full post as published by The Race to the Bottom on November 14, 2008 (boomark / email).