Union Activism Scores Big in the Boardroom: SEC Strengthens CEO Pay Rules

Union activists and their allies scored a victory in corporate boardrooms across the nation this week, as Daniel Pedrotty from the AFL-CIO Office of Investment explains.

You raised your voices and brought about fundamental change in the boardroom. After record input, spurred in large part by comments sent through the AFL-CIO Executive PayWatch website—and some 23,000 through the AFL-CIO Working Families Network for activists—the U.S. Securities and Exchange Commission (SEC) updated rules governing CEO pay for the first time in 14 years.

The rules largely reflect the reforms called for by the AFL-CIO. Corporations must now report a single, catch-all number for executive pay, including CEO golden retirements, perks and stock options. After the federation called for reform in the face of the exploding stock option scandal, the SEC also moved to require better disclosure to prevent these abuses. Finally, the rules governing executive bonuses were strengthened to prevent companies from changing the rules in the middle of the game to ensure large payouts for CEOs.

All too often, CEOs are awarded pay for failure. According to The Washington Post, one recent study examined 60 companies that lost $769 billion over five years. Despite this track record, the top five executives at these companies pocketed a jaw-dropping $12 billion, or an average of $8 million per executive, per year. On average, the CEO of a Standard & Poor’s 500 company made $11.75 million in total compensation in 2005, according to a preliminary analysis by The Corporate Library.

Pfizer was ground zero in this year’s CEO pay wars. CEO Hank McKinnell soon will retire with an $83 million lump sum pension, even though the company’s stock has fallen 46 percent during his tenure. Earlier this year at the company’s annual shareholder meeting, an airplane circled the company’s annual meeting with a banner reading, “Give it back, Hank!” as union members handed out fliers, chanted and held signs to demand that McKinnell return half of his pension.

More work remains to be done to bring fundamental change to the boardroom. All too often, boards of directors, the shareholder’s representative, rubberstamp CEO pay packages. Union-sponsored pension funds, which hold nearly $400 billion in assets, will continue to push for reform.

Among the ideas gaining traction is AFSCME’s “say on pay” proposal in which shareholders vote up or down on management’s annual pay package. Such a law is on the books in the United Kingdom, and while advisory, the vote has reigned in excessive pay awards and forced companies to answer to their owners. Shareholders also must be given equal footing with the company to nominate their own directors.

With you help, we can continue to ensure that working people and their benefit funds have a voice in the corporate boardroom.

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