Pay, Governance Proxy Vote Requests Rise 20%

Activist investors have increased demands by more than 20% for shareholder votes this year on pay and corporate governance issues at U.S. companies including AOL Time Warner Inc., Eli Lilly & Co. and Verizon Communications Inc.

Shareholders have submitted more than 645 pay and corporate governance proposals for votes at annual meetings by U.S. companies, already surpassing the 527 shareholder resolutions on such issues filed last year, according to the Investor Responsibility Research Center, a clearinghouse on shareholder votes.

Resolutions are nonbinding, however, so even if they receive majority support they can be ignored.

Stock options -- the subject of about one-third of this year’s proposals -- have been blamed by some investors for contributing to outsize pay packages and causing executives to sacrifice long-term growth for quick boosts in stock prices. Such criticisms spread after accounting scandals at Enron Corp. and WorldCom Inc.

“The Enron executives that cashed out millions of dollars of stock options are still rich today, and that’s why we’re seeing such a focus on executive compensation,” said Brandon Rees, senior analyst for the AFL-CIO.

The labor federation manages about $400 billion in pension funds.

Many companies are engaged in talks with shareholders about their proposals or are in legal skirmishes over whether the vote requests are valid. Not all the proposals will make it onto corporate proxies, the ballots for annual meetings, where stockholders elect a board of directors and vote on other concerns.

Some investors withdraw proposals after companies make concessions; for their part, companies can exclude some proposals as interference in day-to-day business after getting permission from the Securities and Exchange Commission. Most proxies are distributed in March.

The AFL-CIO for the first time is asking companies to allow a shareholder vote on cutting off stock options for top executives but not for other employees. The proposal has been sent to seven companies, including AOL, Verizon and American Express Co.

Also this year, shareholders may be asked to vote on whether Lilly, Starbucks Corp., Caterpillar Inc. and dozens of other companies should treat stock options as an expense in their income statements, an accounting change aimed at discouraging large grants.