By Thomas Gryta and Drew FitzGerald
Shareholders at General Electric Co. and AT&T Inc. rejected the companies' executive compensation plans in nonbinding votes, the latest blue-chip companies to be rebuked by investors over how they paid leaders during the pandemic.
Nearly 58% of GE shares were voted against the board's compensation practices, according to an initial tally announced at the GE annual meeting Tuesday. Less than half of shares cast at AT&T's meeting last week supported the telecom and media giant's compensation plans, the company said Friday. Neither company has disclosed full tallies yet.
The two widely held stocks add to a growing list of big U.S. companies that have failed to garner shareholder support for their executive compensation plans this year. Such advisory votes are nonbinding and rarely fail to win overwhelming shareholder support; but some institutional investors have used them this year to also voice their displeasure with Starbucks Corp. and Walgreens Boots Alliance Inc., among others.
The executives at GE and AT&T received special stock awards in 2020 that made them among the highest-paid business leaders last year, a difficult period when the pandemic disrupted business, tested managers and cost millions of Americans their jobs. The median CEO received compensation of $13.7 million in 2020, according to a Wall Street Journal analysis in April.
Asset manager Allianz Global Investors said its stewardship committee decided to vote down AT&T's executive compensation plan. "This rationale takes into account multiple one-off decisions by the compensation committee raising concerns around performance linkage," an Allianz spokeswoman said, adding that long-term incentive payments "enabling payouts for performance that is inferior to peers" also contributed to the decision.
Shareholders have voted down compensation questions at eight companies in the Russell 3000 index, or about 4.2% of those holding votes so far this year, compensation consulting firm Semler Brossy said in a report issued last week. That is twice the rate at the same time last year. Among the 191 companies holding votes thus far, the average support for compensation votes is 89% in the Russell 3000 and 87% for the S&P 500, both well below the average result at this time last year.
The Covid-19 pandemic has given investors more information than usual about a company's management quality, at least during a crisis, said Jie Cai, a Drexel University finance professor who studies corporate governance and compensation. "Investors are getting more signals about what their managers' skills are -- they are maybe rewarding the good ones and punishing the bad ones," he said.
Although the votes are nonbinding, companies often respond to a poor showing by adjusting pay practices in future years, Prof. Cai said. "The publicity is bad," he said. "There's definitely pressure on the companies, on the board specifically."
Larry Culp, GE's chairman and chief executive, received compensation valued by the Boston-based company at $73.2 million, according to securities filings. Over the summer, the GE board revised the CEO contract, extending it until 2024 and awarding Mr. Culp a special stock grant that was valued at more than $100 million at the end of 2020. Mr. Culp, who voluntarily gave up his pay during the pandemic last year, drew a salary of $653,409 for the full year.
The GE vote came after a campaign opposing the compensation vote with proxy advisers Glass Lewis & Co. and Institutional Shareholder Services recommending investors withhold their support.
Neuberger Berman, an investment manager, warned GE in advance that it would withhold its support because of Mr. Culp's contract extension, arguing Mr. Culp's pay should have been reduced when performance targets were eased amid the pandemic. "When performance targets are reduced, potential payout levels should also be lowered," said Caitlin McSherry, the firm's director of investment stewardship.
The money manager said the vote didn't reflect a lack of confidence in Mr. Culp. "We view Larry's leadership as a critical component of GE's ability to lead a successful turnaround," Ms. McSherry said. "Extending his time with the company was the right decision."
At Tuesday's meeting, lead GE director Tom Horton answered questions about the compensation change and defended the board's decision. At the beginning of the pandemic, it became evident that GE's turnaround would take longer than initially planned, Mr. Horton said, and the board moved to secure Mr. Culp's leadership through 2024.
At the time, the board viewed the move as an extension, he said, but also discussed how the new stock grant might be viewed as a repricing of his performance-based goals.
"The board believed it was in GE's best interest and our responsibility as the board to secure Larry so he can continue to drive GE's transformation," Mr. Horton said. "If the maximum number of shares are earned in 2024, it will mean all shareholders will have benefited."
A spokeswoman for the GE board said it would take the shareholder vote into consideration as it evaluates its compensation program.
At AT&T, CEO John Stankey and WarnerMedia division chief Jason Kilar collected compensation valued at $21 million and $52.2 million, respectively, during their first year on the job. Much of Mr. Kilar's package reflected stock awards that would pay out over several years.
Randall Stephenson, who served as AT&T chief executive until the end of June, when Mr. Stankey took over, and as chairman until January, had compensation valued at $29.2 million.
AT&T said its compensation program aims to attract and keep executive talent, while also taking into consideration shareholder feedback in the drafting of pay plans. "As we further engage with our owners on this important topic, the Board will carefully consider today's advisory vote to ensure that our approach to compensation continues to reflect these principles," AT&T Chairman William Kennard said in a statement.
The Dallas-based company said about 49% of shareholders voted to approve its executive compensation but didn't disclose other details about the vote.
Both GE and AT&T underperformed the broad market last year. GE's total shareholder return was negative 2.7% in 2020, while AT&T's was negative 21%. The S&P 500 index had a total return of 18.4% in 2020.
Write to Thomas Gryta at email@example.com and Drew FitzGerald at firstname.lastname@example.org
Corrections & Amplifications
This was corrected May 5, 2021 because the original incorrectly said General Electric Co. Chief Executive Larry Culp gave up his annual salary of $653,409. He voluntarily gave up his pay during the pandemic last year, drew a salary of $653,409 for the full year.
(END) Dow Jones Newswires