Investor Outrage Reaches Record Levels

This spring will serve as a litmus test of shareholder outrage, kicking off the first season of annual meetings since investors learned of stunningly big executive payouts at the likes of GE(GE Quote - Cramer on GE - Stock Picks) and Tyco(TYC Quote - Cramer on TYC - Stock Picks). Such revelations have sparked growing indignation against the backdrop of a three-year stock slump, prompting shareowners to brandish a record number of reform proposals.

As of the end of March, with another two months to go in the main proxy season, U.S. shareholders had already filed 912 proposals with public companies, the most seen by the Investor Research Responsibility Center. To put that in perspective, shareholders filed 802 measures in all of 2002.

Big institutional investors such as pension funds and labor unions are homing in on outsized corporate pay. They've already scored high-profile victories at Tyco and Hewlett-Packard(HPQ Quote - Cramer on HPQ - Stock Picks), where shareowners passed measures to make executive severance packages subject to their approval. Under law, such proposals are advisory only. But boards that ignore rising investor anger could themselves become targets in future elections.

Compensation reform is the "No. 1 issue this year," says Ann Yerger, a spokesperson for the Council of Institutional Investors. Yerger says the new focus on compensation "reflects deep-seated and persistent concerns about executive pay abuses and excesses. It's been a remarkable year for corporate scandals and disasters. I think shareholders are shocked and distressed and I think really wrestling with what to do."

Adds William Patterson, director of the AFL-CIO's office of investment, "I think the high-profile failures of the capital markets have been governance failures. Behind every collapsed CEO and company and incompetent or corrupt CEO has been a board that has been at best inattentive, at worst, co-opted and bought off."

Aiming to clean up their tarnished image, a few companies have proactively curbed some benefits. Following negotiations with the AFL-CIO, General Electric(GE Quote - Cramer on GE - Stock Picks) and Coca-Cola(KO Quote - Cramer on KO - Stock Picks) said in February that they would end certain perks. GE, which was excoriated for the benefits it showered on former CEO Jack Welch, axed a deferred salary plan available to five top managers. Coke said it would phase out a retirement plan offered to a trio of the highest-paid executives, including its chief executive.

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