Aflac Investors Get A Say On Executive Pay, A First For A U.S. Company

Aflac on Monday became the first publicly traded American company to give shareholders a vote on top management’s compensation — or, in governance parlance, a say on pay. And apparently they think the compensation committee is doing a fine job.

Daniel Amos, the chief of Aflac, was pleased to learn that shareholders showed strong support for compensation levels.

Slightly more than 93 percent of shareholders approved of the $11.96 million compensation package that Daniel P. Amos, Aflac’s chief executive for the last 18 years, received last year. Only 2.5 percent voted against it.

The resounding vote of confidence does not surprise compensation experts. “Aflac is well suited for a say-on-pay vote because it has a good story to tell to shareholders,” said Irving S. Becker, who heads up the Hay Group’s executive compensation practice. “Aflac’s C.E.O. has created a lot of value for shareholders over his long tenure, and his pay package is shareholder-friendly.”

Indeed, Aflac’s stock has appreciated by more than 3,000 percent during Mr. Amos’s tenure. The stock closed at $66.88 Monday, down 26 cents.

“As he makes more money, I make more money,” said George H. Nader, a shareholder in West Point, Ga., who has been accumulating Aflac shares for more than 30 years. “The dividend keeps increasing and the shares have done well. The man at the top is thinking of the shareholders, and he deserves to be compensated for that.”

Such comments come as a relief to Mr. Amos, who said he was particularly “thrilled” with the paucity of thumbs-down votes. “There’s no question that I make a lot of money,” he said in an interview after the meeting. “But I couldn’t be sure that all of our shareholders understood the concept of pay for performance, that I do well only if they do well.”

Aflac is the first of what governance experts expect will be numerous companies to offer shareholders a say on pay. Verizon Communications, Par Pharmaceutical, Blockbuster and RiskMetrics have pledged to do so, and shareholders are clamoring for the vote at other companies.

Last year, investors filed 60 resolutions asking for a say on pay and got about 44 percent of the vote, on average. This year, more than 90 such resolutions were filed.

A group of companies and investors, led by Pfizer, Walden Asset Management and the American Federation of State, County and Municipal Employees, has been working with the Millstein Center for Corporate Governance and Performance at the Yale School of Management to see whether they can forge common ground concerning say on pay.

Say-on-pay votes do not enable shareholders to usurp the compensation committee’s authority. They are a retrospective thumbs-up-or-down vote on pay that was awarded the previous year — in other words, a show of confidence or lack thereof in the committee’s actions.

Say-on-pay votes have been common in Britain and Australia for several years, and governance experts say they have most likely reined in compensation in those countries.

Say-on-pay votes fall far short of providing compensation committees with a blueprint for action, though.

“If shareholders vote ‘no,’ you can’t tell if they are against the mix of cash and equity, the performance metrics, or the whole compensation philosophy,” said Laura Thatcher, a partner who specializes in executive compensation at the law firm of Alston & Bird. “And a ‘yes’ vote can make the board unwilling to change any element of the compensation package in the future.”

In Aflac’s case, that may be a moot point. Mr. Amos said that Aflac had used the same compensation methodology for 13 years.

“We’ve changed the mix a bit, adding more restricted stock and cutting back on options,” he said. “But the formula for that top number remains the same.”

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