Citigroup shareholders seem to have started a trend.
After the resounding rejection of Citigroup's compensation plan earlier this week, shareholders at other banks are following suit, according to a Wall Street Journal story by Robin Sidel, Suzanne Kapner and Joann S. Lublin Thursday.
The movement reflects a widespread disgust with pay in the banking sector that seems to have finally found its voice with the Citi smackdown. It could affect shareholder meetings coming up this spring at other gargantuan banks such as Bank of America, JPMorgan Chase and Wells Fargo.
It is also having an effect on smaller regional banks. Shareholders on Wednesday rejected the executive pay plan of regional bank FirstMerit Corp., of Akron, Ohio, the WSJ reported. The bank gave its CEO a pay raise to $6.4 million last year from $5.5 million, while its stock fell 20 percent, the WSJ notes.
Coming up later this month and next there will be more shareholders' meetings for regional banks, including Huntington Bancshares Inc. of Columbus, Ohio; Associated Banc-Corp of Green Bay, Wis.; and Hudson City Bancorp Inc. of Paramus, N.J. Proxy advisory firm Glass Lewis & Co., which recommended shareholders vote against pay plans at Citi and FirstMerit, is also against pay plans at these banks, and several more.
It might be difficult to tell just how much trouble shareholders are really making. A recent study by consulting firm Towers Watson found that shareholders so far in 2012 have approved 90 percent of corporate pay plans for 2011. That roughly matches the approval rate for 2011, the first year such say-on-pay votes were required by the Dodd-Frank financial-reform act.
But shareholders may be giving companies a pass because companies are throwing cash around a little less. Average CEO pay rose just 2.6 percent in 2011, according to Towers Watson, while bonuses were flat. The year before, pay was flat, but bonuses jumped 21 percent.
And a new survey of investors by FTI Consulting found that 81 percent think that having a say on pay is "very or critically important" this year. More than 80 percent of investors said they would withhold votes from directors that didn't respond adequately to shareholder concerns about pay.
“Historically, shareholder involvement into boardroom affairs has been reserved for activist investors," Elizabeth Saunders, Americas Chairman of the Strategic Communications practice at FTI Consulting, said in a press release. "But increasingly, we are seeing that the investment community at large wants to have the levers to hold executive leadership accountable for performance and corporate practices."
Heightening the sense of embattlement, the Occupy movement plans to protest at 36 shareholder meetings this spring, Reuters reports. Their first gathering will be at the Wells Fargo meeting, next Tuesday in San Francisco. Bank of America and Morgan Stanley are also on the list, according to Reuters.
The Occupy protesters probably won't spend all their energy yelling about executive pay. But maybe some inspired shareholders will.
"After 15 years, shareholders are beginning to protest," Richard Trumka, president of the AFL-CIO, said on Thursday announcing the results of the labor union's own executive-pay study. It found a significantly bigger gain in CEO pay in 2011, up 14 percent, than the Towers Watson survey. But that was down from a 23 percent gain the year before.
Trumka called the Citigroup rejection a "bell-ringer." And Robert Fields, of New York law firm Fox Rothschild, told the WSJ the Citi event would "raise everybody's consciousness," possibly leading to more shareholder lawsuits for companies that don't listen to shareholders' concerns about pay.