Heinz shareholders reject golden parachute, but sale will go on

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Sometimes the parachute is a little too golden.

That's why the Dodd-Frank reforms signed into law in July 2010 required a shareholder vote on executive pay packages.

But when shareholders reject a plan -- like they did Tuesday at a meeting to approve H.J. Heinz Co.'s $28 billion cash-and-debt sale -- does it matter?

The vote on the company's "say-on-golden-parachute" proposal drew 103.4 million ballots against pay packages outlined in the deal and 94.8 million for. There were 4.3 million abstentions, according to a company filing with the Securities and Exchange Commission.

Unlike the merger vote, the vote on executive pay packages is nonbinding and advisory only. The sale of Heinz to 3G Capital and Berkshire Hathaway is still expected to close in the next couple of months.

"It doesn't hold up the deal," noted Todd Sirras, managing director with Semler Brossy Consulting Group in Los Angeles.

And it seems unlikely that any changes will be made to the terms of the deal as a result of the vote. Heinz will be taken private, meaning its relationship with shareholders is about to end anyway.

Those involved in advising companies on compensation, on structuring deals and similar issues say it may take awhile to see what, if any, impact the Dodd-Frank golden parachute provision has on executive pay.

"It's like say-on-pay's lesser known sibling," Mr. Sirras said.

Say-on-pay is the term used to describe a vote that gives shareholders at thousands of public companies the right to weigh in on executive packages, often annually.

Those, too, are nonbinding but public companies want to keep investors happy, so they listen, said Aaron Boyd, director of governance research at Equilar Inc. in Redwood City, Calif.

"Companies certainly take these votes seriously," Mr. Boyd said, citing examples of General Electric and Disney making changes in recent years.

Far fewer companies are bought and sold each year, noted a report by compensation consulting firm Pearl Meyer & Partners that said shareholder advisory firms such as Institutional Shareholder Services are still fine-tuning how they judge golden parachute packages.

"To some extent, we're all getting used to being in the new environment," said Dan Wetzel, a managing director in Pearl Meyer's Los Angeles office, who noted ISS has said it expects to recommend against more golden parachute packages this year.

ISS issued a recommendation against the Heinz plan in April, criticizing several pieces of the package including $56 million for chairman, president and CEO Bill Johnson that included stock awards accelerated by the planned sale.

After the numbers were tallied on Tuesday, company spokesman Michael Mullen said, "Heinz values all shareholder input and we appreciate their feedback on this nonbinding, advisory vote on executive compensation."

Heinz isn't the first company to lose a golden parachute vote, but there haven't been many such losses in the three years since Dodd-Frank was approved.

Other recent examples of shareholders rejecting such packages include: Ariba, in a vote held in August as part of its merger with SAP; Ralcorp, in a vote held in January as part of its acquisition by ConAgra Foods; and Ameristar Casinos, just last week as its shareholders voted on a merger with Pinnacle Entertainment.

It's unclear if the adverse vote had any impact on those transactions. And, in a case like that of Heinz, any steps taken might never be revealed publicly, said Mr. Sirras. As a private company, Heinz will not have to make such disclosures.

"The court of public opinion, it's not in session for them," he said.

That doesn't mean companies aren't considering the golden parachute issue, but that discussion may come as they structure executive pay and negotiate deals, said Mr. Wetzel.

They want to structure contracts that are fair, that don't give executives incentives to sell at inappropriate times, yet also don't create roadblocks to transactions that would benefit shareholders. Boards are well aware that such deals may face potential lawsuits, which are common around such transactions, he said. In addition, few want to develop a reputation as having been excessively generous.

Internationally, some countries have made their say-on-golden-parachute votes binding, although few see that coming soon in the U.S.

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Teresa F. Lindeman: tlindeman@post-gazette.com or at 412-263-2018.


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