Will we see a new wave of shareholder activism?
Earlier this month, Citgroup (
) shareholders voted to reject a $15 million pay package for chief
executive officer Vikram Pandit, with 55 percent of the votes
against the compensation plan in a non-binding vote. Citi is
up about 29 percent this year, but it lost 44 percent last year and
is still down almost 25 percent since the end of last April.
The move came as a massive surprise - shareholders rarely rise up to outright reject executive pay, even in non-binding votes. Of course, the contrast between Pandit's pay and the performance of the shares appears especially galling, though the bank - which borrowed about $45 billion after the 2008 financial crisis - does appear to be somewhat on the mend.
The winter of shareholder discontent
According to FierceFinance , Wells Fargo ( WFC ) could be the next target for activist shareholders. The website cited Value Alliance, a corporate governance advisory company, which pointed out that while Wells Fargo gave out $43.7 million in performance bonuses to its five highest-ranked executives, "the definition of performance seems narrowly defined. Foreclosure issues have scorched the bank's reputation, but the justifications in the proxy for the CEO's pay don't reflect that."
Shareholder discontent isn't limited to the financial sector - it affects companies producing real goods as well. The Financial Times reports that GE shareholders nearly passed a vote which would give them the power to propose corporate resolution "by written consent." The vote failed, but it garnered 47.5 percent support despite claims of GE's board of directors that the whole idea "would not serve the best interests of shareholders."
Executive compensation at one of the world's largest manufacturers, however, was left untouched.
?Trend or anomaly?
Do these actions comprise a distinctive trend? Not necessarily - they will, however, embolden more shareholders and their advisors to push back a bit more, though the practical results of that may be limited. Interestingly, a few tech companies appear to be getting out ahead of the trend with different tactics. Google ( GOOG ) announced a new voting structure for its shares shortly before the Citi rebuke, creating a class of shares dubbed Class C capital stock .
These shares lack voting rights, which effectively allows the company to continue issuing new shares while founders Larry Page and Sergey Brin retain control. The news was received negatively, with shares briefly dropping below $600 before recovering somewhat; still, Google is down more than 5 percent since the announcement.
While Google's founders decided to tighten their grip, over in Cupertino, Apple ( AAPL ) may have given in a bit to shareholder pressure. The world's most valuable company by market cap decided to return some of its massive cash reserves to shareholders through a $2.65 quarterly dividend starting in July 2012 and a $10 billion share buy-back beginning in September 2012.
Of course, investors must feel pretty happy with the company right now. Apple announced record quarterly profits of $11.6 billion on $39.2 billion, effectively doubling earnings since a year ago off the back of massive iPhone sales in emerging markets like China.
Perhaps the message for executives is simple, then - keep making profits, and you can buy shareholder happiness. Money, after all, makes the investor's world go round.