CEO Pay Emerges As This Year's Hot Button Issue

Investor discontent for executive compensation packages has caught many corporate boards off guard, particularly since stock prices are generally up, experts say.

JaysonPhotography/JaysonPhotography

At the midway point of the year, the most hotly contested issue to emerge in proxy battles is one many companies weren't anticipating: CEO pay.

Over the last two months, disenchanted shareholders have used corporate annual meetings as a battlefield to wage war over executive compensation, despite the fact that the market was up more than 30% last year and shareholder returns were generally higher than expected.

"This year saw a pay revolt that no one expected," said Michael Pryce-Jones, senior government policy analyst at CtW Investment Group, a firm that represents unionized shareholders in proxy fights with companies. "I think a lot of companies went into this year not believing that pay was going to be an issue because the stock market was up. Most boards think it doesn't matter as long as the stock is performing, and a lot of people were thinking there wouldn't be high profile pay revolts this year."

But such fights have so far been rampant. Perhaps the most glaring among them was at casual dining chain Chipotle, where 77% of shareholders voted down its compensation plan, which would have granted its co-CEOs the opportunity to make up to $285 million over three years. The pay package plan was voted down even after Chipotle's stock has climbed from $376 per share to more than $600 per share in just the last year.

Other companies that faced compensation challenges from shareholders include Domino's Pizza, McDonald's, Nabors Industries, Wal-Mart, Starwood, Burger King, and Sensient Technologies, to name a few.

Pryce-Jones said one of the leading indicators that shareholders are seriously dissatisfied with executive compensation is the fact that typically quiet large institutional investors, namely public pension plans, have voiced their opposition in a number of these battles, among them Chipotle, McDonald's and Domino's.

The California Public Employees' Retirement System, the California State Teachers' Retirement System and the New York City Public Pension Funds all publicly voiced their discontent with these companies pay packages recently, a relatively uncommon practice.

"When CalSTRS and CalPERS go public with their issues," Pryce-Jones said, "I think that speaks to the extent of their concern."