Executive Compensation - Say on Pay
2009 – Cisco Systems, Inc.
RESOLVED, that shareholders of Cisco request the board of directors to adopt a policy that provides shareholders the opportunity at each annual shareholder meeting to vote on an advisory resolution, proposed by management, to ratify the compensation of the named executive officers (“NEOs”) set forth in the proxy statement’s Summary Compensation Table (the “SCT”) and the accompanying narrative disclosure of material factors provided to understand the SCT (but not the Compensation Discussion and Analysis). The proposal submitted to shareholders should make clear that the vote is non-binding and would not affect any compensation paid or awarded to any NEO.
Supporting Statement: An Advisory Vote establishes an annual referendum process for shareholders about senior executive compensation. We believe the results of this vote would provide the board and management useful information about shareholder views on our company’s executive compensation.
Investors are increasingly concerned about mushrooming executive compensation especially when it is insufficiently linked to performance. In 2009, shareholders filed over 100 “Say on Pay” resolutions with votes averaging 47% in favor, and 20 votes over 50%. Such votes demonstrate strong shareholder support for this reform. Over 20 companies voluntarily adopted the reform.
At Cisco, the resolution received a 48% vote in 2007.
Our company has forward looking elements in its compensation package and is responsive to dialogue with investors. However, we believe the results of a vote combined with shareholder engagement will provide the board and management useful information about shareholder views on our company’s executive compensation.
In its 2008 proxy Aflac submitted an Advisory Vote supported by 93%, indicating strong investor support for good disclosure and a reasonable compensation package. Daniel Amos, Chair and CEO said, "An advisory vote on our compensation report is a helpful avenue for our shareholders to provide feedback on our pay-for-performance compensation philosophy and pay package."
Other companies have also agreed to an Advisory Vote, including Intel, Hewlett-Packard, Occidental Petroleum, Verizon, MBIA, PG & E, H&R Block, Blockbuster, Ingersoll-Rand and Motorola. And approximately 300 companies under TARP are implementing the Advisory Vote, an opportunity to see it in action.
Public concern about executive compensation has reached new heights stimulated by reported excesses and compensation problems. President Obama and SEC Chair Mary Schapiro both have spoken in support of the Advisory Vote and legislation or regulation is expected. A wise step for companies would be to adopt an Advisory Vote without being compelled by legislation.
We believe that existing SEC rules and stock exchange listing standards do not provide shareholders with sufficient mechanisms for providing input to boards on senior executive compensation. In contrast, in the United Kingdom, public companies allow shareholders to cast a vote on the directors’ remuneration report. Such a vote isn’t binding, but gives shareholders a clear voice on senior executive compensation.
We believe that a company that has a clearly explained compensation philosophy and metrics, reasonably links pay to performance, and communicates effectively to investors will find an Advisory Vote a helpful tool.