U.S. activist investors are preparing a flurry of corporate ballot measures at Wall Street banks in hopes that some big items on their wish lists, such as CEO pay reforms, will gain new traction amid the subprime lending crisis.
Proposals to give investors an advisory vote on chief executive compensation packages won wide support -- but not enough to pass -- at Merrill Lynch & Co Inc, Citigroup Inc, Morgan Stanley and elsewhere in the last proxy season.
Now, as investment banks reel from big write-downs on risky mortgage investments and shake-ups in the executive suite, activists are filing these say on pay proposals again and hoping they'll get more support at next spring's annual stockholder meetings.
They're also pushing for shareholder votes on an array of new executive pay initiatives.
Proxy ballots also could include proposals on risk disclosure and the relationships between banks and credit rating agencies that have been criticized for not sufficiently warning investors of subprime mortgage hazards.
Banks, lenders and others that have suffered from the subprime market collapse are going to be the target of a lot of shareholder action, said Richard Ferlauto, director of pension and benefits policy at the American Federation of State, County and Municipal Employees.
The strategy that many of these companies adopted was to assume too much risk, he said. For awhile, when the market was riding high, they were able to take advantage, but when the liquidity in the market collapsed because of the credit crisis, it came home to roost.
This is a busy time for activist investors, such as union-backed pension funds and public retirement systems, which already have had to submit resolutions to some companies or are facing looming filing deadlines if they want to get proposals on next year's ballots.
Proposals do not automatically get on ballots. Filers must meet eligibility rules, and companies sometimes can petition the U.S. Securities and Exchange Commission to exclude them.
Among the proposals that investor groups hope to get on ballots next year is a measure to force financial companies to reveal more about the types of mortgages they trade in. The measure was submitted at Bear Stearns Co Inc and Lehman Brothers Holdings Inc by the pension fund of the Laborers' International Union of North America.
LIUNA, which runs a retirement fund for construction workers, said the proposal did not get into the mechanics of how the disclosures would be made, saying that would be something for the companies to work out.
The fund also has filed measures at Citigroup, IndyMac Bancorp Inc and Wells Fargo & Co to implement new controls on their relationships with credit rating agencies. The three big agencies are McGraw-Hill Cos Inc's Standard & Poor's unit, Moody's Corp and Fitch Ratings, a part of Fimalac SA.
The proposals would bar credit analysts from covering the same company for more than five years and restrict the job movements of key employees between the credit agencies and the financial services sector.
Also, the Laborers' union has filed proposals at Merrill and Bank of America aimed at forcing them to disclose what kind of CEO succession plans they have in place, said Corporate Affairs Director Richard Metcalf.
Executive compensation also will be front and center following some high-profile CEO departures on Wall Street, whose leaders' paychecks are among the highest in corporate America.
Merrill ousted Stan O'Neal as chairman and CEO last month just days after the company reported its biggest-ever quarterly loss. O'Neal, who took home about $48 million in compensation in 2006, also had about $161.5 million in retained stock awards and benefits when he departed.
Citigroup Chairman and CEO Charles Prince also left early this month amid big mortgage write-downs. He was paid about $26 million last year. Upon his retirement, he left with about $40 million more, including the value of vested options, deferred stock and restricted shares, as well as bonus and stock awards.
The hot issue of say on pay voting -- nonbinding votes for shareholders on whether they approve of executive pay packages -- will be reintroduced at an array of banks next year by AFSCME, Ferlauto said.
Elsewhere on the CEO pay front, the AFL-CIO submitted a new proposal at Citigroup to limit the length of an employment agreement with top executives and ban the accelerated vesting of stock options or other stock-based payouts for them.
The measure reflects growing frustration among shareholders who have suffered big stock losses triggered by the mortgage meltdown and are seeing big payments to outgoing chiefs, said Daniel Pedrotty, director of the AFL-CIO Office of Investment.
The shareholder losses are only going to fuel this effort in implementing corporate governance safeguards and pay for performance -- two things that aren't in place now and need to be addressed, Pedrotty said. If boards are not looking out for our interests, then we as shareholders should have the tools to hold them accountable.
(Reporting by Martha Graybow)