Northrop Grumman Shareholders May Get Say On Pay

Dow Jones ^ | Mar 5, 2007 | Judith Burns

[Brilliant]

Northrop Grumman Corp. (NOC) shareholders may get a say on executive pay after all.

The Los Angeles defense company had sought to block a vote on the matter at its 2007 annual meeting, but regulators at the Securities and Exchange Commission rejected that, saying "we do not believe that Northrop Grumman may omit the proposal from its proxy materials" for the annual meeting on May 16.

Northrop spokesman Daniel McClain confirmed the company had received the SEC staff's response in a Feb. 14, letter, and said the firm plans to include the proposal in proxy-voting materials.

The proposal calls for Northrop Grumman to adopt a policy giving shareholders an annual advisory-only vote on executive compensation. The so-called "say on pay" policy was sought by the Service Employees International Union, which said shareholders need ways to provide input to corporate boards regarding executive pay packages. Steve Abrecht, SEIU's director of benefits and capital stewardship, in Washington, D.C., didn't return phone calls seeking comment.

Northrop sought to exclude consideration of the SEIU proposal, asserting that it was vague and misleading. In a Jan. 16 letter to SEC staff, Northrop noted that the proposal calls for shareholders to "ratify" executive pay levels in a nonbinding vote, and said that might confuse or mislead investors. The SEC staff disagreed, clearing the way for a vote on the proposal. If adopted, Northrop shareholders will have an opportunity at each annual meeting to cast a nonbinding vote to ratify compensation of top named executives.

A similar push at WellPoint Inc. (WLP), the largest publicly traded health benefits company in the U.S., fizzled, however. In a Feb. 12 letter, the SEC staff agreed with Indianapolis-based WellPoint that it may exclude the proposal on grounds that it may mislead investors.

"The proposal is not going to be on our proxy," said WellPoint spokesman Jim Kappel.

Connecticut's state retirement plan, which sought the say on pay initiative at WellPoint, won't pursue the matter further at that firm, but is supporting similar resolutions at other companies, said Robyn Belek, a spokeswoman for Connecticut State Treasurer Denise Nappier.

Like many shareholder proposals, Connecticut's was excluded on technical grounds. The proposal called for WellPoint shareholders to vote each year on the board's compensation committee report, yet under new SEC rules for disclosing executive compensation, that report no longer details policies on pay. WellPoint's lawyers said voting on the bare-bones committee report would have misled investors seeking to have a say on executive pay. In contrast, the proposal that will be put to Northrop shareholders calls for a vote based on pay information set forth in a summary compensation table in the company's proxy materials.

[Brilliant]

It looks like this is a nonbinding vote, but we really need to put the shareholders back in control of corporate America. If this pay is justified, then it's the shareholders who should determine that. The reason executive pay is so high to begin with is that management really controls it, not the shareholders. It's not determined by the market. Management is basically stealing from the shareholders.

[MplsSteve]

I agree.

I work in the securities industry and have a lot of experience in corporate governance and proxy issues.

It is high time that shareholders start taking a better look at the annual reports they get in the mail.

To some degree, the deck is stacked against most shareholders. It's hard to get a proposal on the proxy ballot - as evidenced by the article you posted. Voting tabulation procedures (as established by the SEC) favor the corporation over the shareholder. Many corporations set up staggered elections for their boards of directors to prevent shareholders from exercising their pique.

Sooner or later, the shareholders will need to stand up - or the federal govt will do it for them.

And I definitely don't want Ted Kennedy or Nancy Pelosi making those decisions.