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Corporate Governance

: The Race to the Bottom

A Chink in the Armor? Say on Pay

By J. Robert Brown

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Celia Taylor writes:

Aflac, the well known (duck represented) insurance company announced on Wednesday that its shareholders will be given a non-binding vote on the compensation packages given to the company’s top five executives. Aflac is not alone in facing shareholder pressure; shareholder activists have long been clamoring for a voice on this issue and according to Del Jones writing in USA Today, approximately fifty companies face similar shareholder proposals. It remains to be seen what the result of the vote may be and what the company reaction to it will be.

Aflac Chairman and CEO Dan Amos (the second most highly compensated insurance executive in the country according to an analysis by the American Federation of State, County and Municipal Employees union) explained the company’s decision to allow shareholders a voice (which was made in response to a 2006 shareholder proposal) by saying "Our shareholders, as owners of the company, have the right to know how executive compensation works."

A nice sentiment, but it seems highly likely that shareholders don’t know how executive compensation works. Instead of recommending compensation packages based on sound economic factors, it is not unlikely that certain shareholders will engage in emotional voting, especially in light of recent economic downturns. This is not to say that allowing shareholder voice is a bad plan and Aflac is to be commended for at least listening to shareholder demands. The nature of the vote will depend on who votes and how well informed all voters choose to become prior to voting. Will shareholders actually read and understand not onlyAflac’s proxy statement but those of other similarly situated companies?

Still, while it is far too early to know exactly what impact Aflac’s move will have in the world of corporate governance, it is at the very least a chink in management’s armor.

Full post as published by The Race to the Bottom on March 11, 2008 (boomark / email).