Software giant Microsoft Corp. approved a measure last Friday to allow shareholders to vote on its executive compensation, as more U.S. corporations come under federal scrutiny for their pay practices.
The measure comes at the heels of the U.S. Federal Reserve’s announcement of a first-ever plan to regulate executive compensation at banks.
Starting on Nov. 19 at Microsoft’s 2009 annual conference, shareholders will vote on how much executives at the software company will be paid. The vote will be cast every three years.
The catch is that the vote result is not binding, but Microsoft’s board will take into consideration any overwhelmingly negative vote.
“Given the interest in executive pay, we think it makes sense to encourage more dialogue with our shareholders on our compensation approach,” said Brad Smith, Microsoft general counsel and board secretary, in a statement. “Our executive compensation program is designed to maximize shareholder value by attracting and retaining world-class leaders and aligning their financial rewards with the growth and success of the company.”
The company is attempting to accrue public goodwill as the U.S. Congress has floated around several measures to allow the general public a “say on pay” of executives after recent bouts of corporate bankruptcies and excessive bonuses. But so far, no measure has been finalized.
“We believe that establishing an advisory vote on compensation is a significant step in providing shareholders a voice on this important issue,” said Aditi Mohapatra, an analyst with the Calvert Group.
According to a Securities and Exchange Commission filing last week, Microsoft chief executive Steve Ballmer was paid $665,833 in salary for fiscal year 2009, a 4 percent increase from last year. The salary is before incentives.
Focus on Wall Street
Most of the federal scrutiny over corporate pay has been aimed at Wall Street, as many financial firms paid out large bonuses even as their companies suffered.
The proposal has not been finalized, but the Federal Reserve would hold the authority to review and reject pay policies—including salaries, bonuses, and other types of compensation—at banks for executives as well as certain other employees, a source told the AP. The review doesn’t just include the top-level executives, but also traders who could take risky positions, putting the financial well-being of their firm at risk.
In addition, the proposal isn’t just aimed at banks currently taking TARP bailout funds from the government, such as Citigroup Inc., but all U.S. banks regulated by the Fed. Currently, more than 6,000 U.S. banks are under the Fed umbrella.
Such sweeping regulatory reforms would likely meet criticism from some lawmakers, economists, and other analysts. Critics have voiced their concern that the Fed has already overstepped its boundaries during the financial crisis and needs to be reined in.
But recent history and public sentiment suggests that reforms are inevitable. President Barack Obama is likely to discuss such actions with other political and economic leaders at the 2009 G-20 Summit in Pittsburgh, Pennsylvania this week.
One of the most publicized bonus controversies involved John Thain, the former CEO of Merrill Lynch. Thain approved $4 billion in employee bonuses for Merrill executives after the company reported a record $15 billion in fourth-quarter losses last year during the thick of the financial crisis. But that’s not all; the bonuses, typically paid out in January, were rushed out in December just days before Bank of America’s acquisition of Merrill Lynch.
In addition, Thain gave the green light to spend over $1 million to decorate his personal office days before his firm collapsed. The renovations were criticized by lawmakers and the media and were later scrapped.
