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Shareowners' Word of the Year: No

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Depending on the source, the 2010 Word of the Year was "austerity" (Merriam-Webster) or the now-infamous "refudiate" (New Oxford American Dictionary). For better or worse, these words captured headlines and the public's attention during the course of the year. What buzzword might sum up 2011?

So far, shareholders large and small might nominate an elegant, simple, yet powerful word for this year's honor: "No."

New mandatory say-on-pay provisions at public companies are beginning to show that when given the option to cast a vote, some shareholders will definitely rebuke corporations' pay packages. These votes are non-binding, but they're increasingly sending the message that outsized pay and downsized performance aren't welcome anymore.

Just sayin'
More and more companies have begun to suffer shareholders' scorn. Hewlett-Packard (NYSE: HPQ  ) saw 50% of its shareholders voting against approval of its proposed pay practices. Stanley Black & Decker (NYSE: SWK  ) and Umpqua Holdings (Nasdaq: UMPQ  ) have more recently experienced similarly resounding votes against their own executive compensation policies.

A mere 39% of shareholders voted for Stanley Black & Decker's compensation practices. Riskmetrics Group highlighted Executive Chair Nolan Archibald's mind-blowing incentives, including a possible $45 million bonus connected to achieving "synergies" related to Stanley Works' acquisition of Black & Decker.

Riskmetrics Group also reported that the paltry 35% shareholder support for Umpqua's pay practices marks a low this year so far. Though shareholder returns have fallen on a one-to-three-year basis, and its stock has underperformed peers, Umpqua's CEO enjoyed a 72% increase in pay in 2010.

Even if they're non-binding, these votes may embarrass the companies that endure them, and sully their reputations not only with consumers, but also with potential and existing investors.

Along those lines, The Corporate Library recently pointed out General Electric's (NYSE: GE  ) decision to retroactively attach performance metrics to stock options awarded more than a year ago, following what the company called "constructive conversations with our shareowners," which could signal that many companies can't bear even the hint of say-on-pay defeats.

In other words, regardless of the votes cast, the mere idea that shareholders now have this option may push companies to think a bit harder about whether their compensation plans could use adjustment.

RiskMetrics Group's data shows that nine companies have failed to gain majority support in say-on-pay votes so far this year. Annual meeting season isn't over yet, either, and RiskMetrics highlighted several companies that may be about to get a compensation comeuppance at their meetings on Thursday, including Pfizer (NYSE: PFE  ) , Johnson & Johnson (NYSE: JNJ  ) , and eBay (Nasdaq: EBAY  ) .

The "say no now" path back to sanity
Despite admirable exceptions, many CEOs' pay has skewed too far from any relationship to actual business performance. Last year, the average CEO made 343 times the pay of the average worker, according to the AFL-CIO's most recent data. Although many of us are fine with lucrative pay for exemplary leadership, too few CEOs seem to embody that quality. Shareholders of all stripes can logically conclude that overpaying underperforming CEOs is a wasteful practice that hampers profitability.

Reining in management-centric cultures that have failed to reward true performance can only benefit companies in the long run. Shareowners who are willing to take a hard look at management performance, and vote "no" to outsized and unreasonable pay packages in this pivotal year, could make "no" the word of the year for 2011. They could also ensure that better corporate leadership gets rewarded for building truly good businesses in the years ahead.

Check back at every Wednesday and Friday for Alyce Lomax's columns on corporate governance.

Johnson & Johnson and Pfizer are Motley Fool Inside Value selections. eBay is a Motley Fool Stock Advisor recommendation. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson, which is also a Motley Fool Income Investor recommendation. The Fool and Alpha Newsletter Account, LLC own shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. For more on this and other topics, check back at, or follow her on Twitter: @AlyceLomax. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 28, 2011, at 12:23 AM, mracz425 wrote:

    Too bad we couldn't do this for politicians lol.

  • Report this Comment On April 28, 2011, at 6:19 PM, CMFStan8331 wrote:

    The prospect of shaming can be a powerful force for behavior modification. Even if most current shareholders don't liquidate their positions in companies employing poor executive compensation practices, bad publicity on that issue could definitely impact a company's appeal to prospective NEW shareholders.

    Someone ought to invent an Executive Compensation Index...

  • Report this Comment On April 29, 2011, at 4:52 AM, nunnatheabovetwo wrote:

    Here! Here!

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