GE Agrees to AFL-CIO Proxy Demands to Disclose Compensation Consultant’s Work

Robert E. McGarrah Jr., capital stewardship coordinator for the AFL-CIO Office of Investment, shares a shareholder victory at General Electric the union movement achieved over the holidays that will increase transparency in consultant compensation.

General Electric Co. (GE), the world’s second-largest company, agreed in late December to the AFL-CIO’s proxy demands on CEO pay and will now tell shareholders for the first time the full extent of its compensation consultant’s work for the company.

Compensation consultants are at the core of rampant CEO pay abuse across the country.  PayWatch.org, the AFL-CIO’s website that tracks CEO pay, reports the average CEO of a Standard and Poor’s (S&P) 500 company made $13.51 million in total compensation in 2005. These CEOs make as much in one day as the average worker makes in one year.

GE’s decision followed talks with the AFL-CIO and are a part of the union movement’s effort to ensure companies provide more evidence that consultants are giving independent advice on executive pay. GE compensated Chairman and Chief Executive Officer Jeffrey Immelt some $21 million in cash and stock for 2005. Says Dan Pedrotty, director of the AFL-CIO Office of Investment:

GE is setting a precedent that other companies should follow.

The U.S. Securities and Exchange Commission (SEC), prompted in part by investor criticism of executive pay and a stock-options scandal involving nearly 200 companies, already has ordered fuller disclosure of pay and the role of consultants within these organizations.

Corporate compensation consultants such as New York-based Frederic W. Cook & Co. Inc. provide CEOs and corporate boards with surveys of long-term incentive pay, as well as services on overall corporate compensation. Leading Wall Street analysts have charged that consultants and corporate CEOs frequently have conflicts of interest, contributing to skyrocketing CEO pay.

The AFL-CIO and a group of pension funds sent similar requests to the 25 largest companies in the S&P 500 Index in October, asking whether their pay adviser did other work for the company and whether they would adopt policies prohibiting such work. They cited potential conflicts like those raised when accounting firms earned millions consulting for companies they audited.

The SEC rule that took effect Nov. 7 will require companies to identify the consultants hired by their compensation committees and describe their role in crafting executive and director pay packages.

The disclosure GE plans to include in shareholder packages for its April 2007 annual meeting will go further than the rule, which doesn’t force a company to describe other work by the consultants or whether top executives helped select the adviser.

The AFL-CIO agreed to withdraw a formal shareholder proposal seeking the consultant information after GE agreed to disclose its compensation consulting relationships with Cook.

Union-sponsored pension funds, which hold more than $400 billion in assets, were joined by a dozen other pension funds in writing other large companies, including Exxon Mobil Corp., the world’s largest publicly traded company, and Microsoft Corp., the world’s largest software maker.

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