‘Say-on-pay’ rules hit US executives

US companies have begun cutting pay and benefits for top executives, and disclosing more details of packages, in anticipation of the effect of new rules that give shareholders greater power to vote down remuneration structures.

According to pay consultancy ClearBridge, which has examined the first 100 Fortune 500 companies to file details of so-called proxy statements – resolutions to be voted on at annual meetings – there is clear evidence of a shift in pay practices.

“Executive compensation tends to go up or stay flat, so any time it goes down is the beginning of a noteworthy trend,” said Russell Miller, partner at ClearBridge.

The 2011 annual meeting season is the first to see the implementation of evidence of the effect of new “say-on-pay” rules, introduced as part of last year’s Dodd-Frank financial reforms.

Nearly 40 companies, including AT&T, Walt Disney and OfficeMax, have eliminated tax breaks that have seen them take on executive tax bills under some circumstances.

At the same time, General Electric has lengthened and toughened the terms of the share option plan for Jeff Immelt, its chief executive, responding to shareholder criticism ahead of Wednesday’s annual meeting.

A portion of the $7.4m option award that would have vested in 2013 was pushed back to 2015, and the entire award only vests if the company meets performance targets.

Companies are also reducing multiples of salary paid to chief executives as part of severance packages, and are adopting provisions to claw back bonus payments at a later date. Of the 79 companies disclosing clawbacks for executives, 34 adopted or enhanced these recently, according to ClearBridge.

Disclosure of pay in proxy materials, the documents sent out to investors before annual meetings, has improved. “Companies have taken it upon themselves to think about what their story is,” said Robin Ferracone of Farient Advisors, a consultancy.

GE put a summary of its pay programme at the start of its proxy statement.

Several companies, including Kimberly-Clark and Lockheed Martin, have anticipated future requirements of say-on-pay rules by adding a comparison of total shareholder returns to chief executive pay.