Release Date: Jan 16, 2004
New York, NY Amalgamated Bank's LongView Collective Investment Funds announced a number of successes on the issue of executive severance in the 2003 shareholder season.
At the close of the 2003 season, the Funds had won majority shareholder votes on its golden parachutes proposals at Union Pacific (57% of the yes-and-no votes cast), Sprint (63.6%), AK Steel (59.2), and Massey Energy (72.5%). By the end of the year, Union Pacific, Sprint, and AK Steel adopted and began implementing the proposals.
"When we evaluate our investments, a key area of concern is excessive executive compensation. One area in particular that we examine is severance packages. We review these as a matter of course each shareholder season," said Julie Gozan, Corporate Governance Specialist for Amalgamated Bank.
Lucrative severance agreements to top-ranking executives are known as "golden parachutes." These agreements, which are not tied to performance, often reward an executive no matter the executive's impact on the company. The Funds seek oversight for such packages by requiring boards to hold a shareholder vote on any severance agreement that amounts to at least three times an executive's annual base pay plus bonus.
"We are glad to see Union Pacific and Sprint adopt these common-sense reforms. However, we are dissatisfied that the other companies we have targeted have not gone far enough. Though AK Steel and Massey Energy had a large number of votes in favor the LongView proposal, both fall short of best practices in the area of executive severance," said Melissa Moye, Chief Economist for Amalgamated Bank's Trust and Investment Services Group.
Although AK Steel adopted the LongView proposal on golden parachutes, the company's latest 10Q filing (dated November 14, 2003) revealed the company owed over $63 million to former Chairman and Chief Executive Richard Wardrop and former President John Hritz. The company awarded these exceedingly high severance packages, even as AK Steel laid off 20 percent of its workforce last October, and reported a loss of $500 million for 2002 (and expected to report a loss equally as high for 2003).
As for the percentage of votes cast, LongView's biggest win was at Massey Energy, where nearly three-quarters of shareholders voted for the right to review severance packages amounting to at least three times an executive's salary and bonus. While Massey's board intends to examine parachutes on a "case-by-case basis," the board has said it will only "seek shareholder approval where that can be accomplished in a manner that does not prevent the board from acting in the best interest of the company."
"By allowing the board to exercise discretion on a case by case basis, Massey is refusing to set a single, transparent standard by which shareholders can exercise oversight of our company. It is unfortunate that a shareholder approval process for large executive severance agreements will be undertaken only at the whim of the board and not as part of consistent best practices," said Moye. "A clear process of review discourages arrangements that ultimately cannot withstand public investor scrutiny."
Amalgamated Bank, "America's Labor Bank," invests workers' retirement savings through its LongView Funds. With $7 billion in assets under management, LongView is one of the most active corporate governance advocates in the market-and the leading advocate on the issue of "golden parachutes." Amalgamated Bank can be found online at www.amalgamatedonline.com.
