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Companies Seek Shareholder Input on Pay Practices
Amid Anger Over Compensation Packages, Executives and Directors Look for New Ways to Appease Investors 
By Phred Dvorak
The Wall Street Journal
Monday, April 6, 2009

As outrage grows over executive-pay practices, biotechnology firm Amgen Inc. is taking the unusual step of asking shareholders what they think of its compensation plan.

In its March 26 proxy, Amgen, Thousand Oaks, Calif., directed shareholders to a 10-question online survey.  Queries include whether the plan is based on performance and whether the performance goals are clearly disclosed and understandable.  Amgen says it will post a summary of the responses on its Web site after its May 6 shareholder meeting.

Amgen's survey, one of the first of its kind, comes as executives and directors seek new ways to reach out to restless shareholders.  Drug maker Schering-Plough Corp. had planned a similar survey before it agreed last month to be acquired by Merck & Co.;  the company declines to comment on whether it will still conduct the survey.  Prudential Financial Inc. this year created a link on its Web site so investors could comment on its compensation plan.

Several other companies are likely to conduct shareholder polls during the next few months, says corporate-governance monitor Gary Lutin, who oversees a forum about executive pay that includes investors, corporate executives and regulators.

Directors at other companies, such as Home Depot Inc., meet with shareholders individually or in groups to hear their concerns.  Such meetings used to be rare.

Edward Durkin, a veteran activist investor with the United Brotherhood of Carpenters and Joiners, says companies are much more responsive than a few years ago.  This year, he says, officials of several firms called him to discuss pay practices before he could call them;  a few put CEOs and directors on the phone, he says.

These outreach efforts are taking on more importance amid rising public anger over executive pay and new government restrictions on compensation.  Shareholders at roughly 400 companies that accepted federal aid will conduct advisory votes this year on those companies' compensation plans.  Congress later this year may require such "say-on-pay" votes at all companies.  The results are not binding, but can pressure boards to alter pay practices.

In the U.K., which has required such votes since 2003, shareholders of Royal Bank of Scotland Group PLC voted by a nine-to-one margin Friday against the bank's 2008 compensation package, which included a [pound ]693,000 ($1 million) annual pension for former Chief Executive Sir Fred Goodwin.  The bank's chairman later said Sir Fred is considering reducing the pension or donating some of it to charity.

Polling on Pay

Some companies are asking shareholders to comment on their pay plans.  Here are edited versions of select questions from a poll by Amgen Inc.

-  Is the compensation plan performance-based?
-  Is the plan clearly linked to the company's business strategy?
-  Is the plan customized to suit the company's size, industry and performance?

Sources: Amgen, TIAA-CREF

Investor surveys can give boards detailed information on what parts of pay plans investors like or don't like, and let directors craft specific questions, says an executive at a company that's considering a poll.

Amgen's survey questions were written by pension-fund manager TIAA-CREF to help it evaluate pay plans of companies in which it invests.  Some of those companies asked TIAA-CREF for pointers on how investors view their compensation.  The firm, which manages around $363 billion in assets, made its checklist public last year, says Hye-Won Choi, head of corporate governance.  "It's a way to get companies to pay attention to the things shareholders care about most," Ms. Choi says.

Amgen hasn't received any holder complaints about executive pay, says spokesman David Polk.  Amgen CEO Kevin Sharer received total direct compensation of $13.2 million in 2008, including salary, bonus and the value of equity grants, according to an analysis by Hay Group, a Philadelphia management consultancy.

Amgen invited shareholders to give online feedback on its executive-pay practices last year, but only a handful responded, says Mr. Polk.  Responses ranged from thoughts on appropriate levels of compensation to comments on incentive pay, he says.

This year, Amgen hopes the survey will elicit more specific replies, although shareholders can still submit free-form comments.  The company urged its 30 biggest shareholders to take part in the survey, Mr. Polk says.

Amgen provides its own answers to the survey questions, including detailed explanations and references to its proxy.  In response to a question of whether Amgen's pay plan is "clearly linked to the company's business strategy," the company says annual cash-incentive awards for 2008 were based on revenue, earnings per share and progress with its drug pipeline.  Long-term equity grants are tied to Amgen's share performance, the company says.

Write to Phred Dvorak at