So far, investors aren't fighting back to change CEO pay levels

This was the year corporate governance experts predicted that investors, stung by plunging stock prices as the recession intensified, would finally demand big changes in CEO pay levels and ineffective boards.

But so far during this spring's annual meeting season, there have been few examples of investors fighting back. Shareholders have yet to vote down a single executive pay plan at U.S. companies and only a handful of corporate directors have lost investor backing. Support for corporate management is still the status quo.

"It turns out (U.S.) shareholders may be more accepting of how things work than the perception really is," said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.

In contrast, five companies in England already have lost shareholder votes on executive pay this year. The latest came Tuesday when oil company Royal Dutch Shell Group's pay plan was rejected. There was also significant dissent, though not by a majority, at three other British companies, according to RiskMetrics, a financial risk management company.

That kind of activism comes six years after what is known as "say on pay" was first used by British shareholders. While those votes don't require boards to take any action, they still allow investors to make themselves heard.

In the United States, this slow process is just beginning. It's true that investors at more companies are voting in support of putting a shareholder vote on executive pay on corporate ballots. But that's just the first step before a vote on the pay plan can take place.

The number of shareholder proposals asking for a nonbinding investor vote on executive pay has doubled since 2007 to more than 100 this year, according to data from the American Federation of State, County and Municipal Employees, or AFSCME, a Washington-based labor group representing government workers.

All told, 23 companies have allowed say-on-pay provisions to proceed to a vote, AFSCME said, but even those that pass are still nonbinding, meaning the companies can still ignore the advice. Not included in that count are the hundreds of financial companies receiving government bailout funds that were forced to implement pay restrictions.

Even one of the nation's best-known shareholder activists, Richard Ferlauto, acknowledges that investors aren't acting in unison. Ferlauto is director of corporate governance and pension investments at AFSCME.

Many institutional investors like mutual funds still largely support company-sponsored proposals, not those put forth by shareholders. Ferlauto contends that "rigs the game" because institutions often represent at least 20 to 25% of a shareholder vote.

But the numbers show that the majority of investors still aren't taking a stance.

Of the companies that have held say-on-pay votes, Motorola Inc. faced the largest opposition with about 36% of investors not supporting its compensation plan, according to AFSCME.

That vote followed the company's hiring last summer of new co-CEO Sanjay Jha, who was given a compensation package valued at $104.4 million at the time it was granted in August, based on calculations by The Associated Press. That made him the second-highest compensated CEO for 2008 on the AP's list of Standard & Poor's 500 companies.

But others that held say-on-pay votes have seen even less shareholder backlash. Pay programs have won more than 90% of shareholder votes at companies including Goldman Sachs Group Inc., Alaska Airlines and Verizon Communications Inc.

U.S. investors not only are supporting compensation plans, but they're also keeping most directors around. Only nine directors at five companies have failed to get shareholder support, according to RiskMetrics.

Three of those nine came from Pulte Homes Inc., where a majority of shareholders withheld votes for each of the homebuilder's director nominees at the company's annual meeting on May 14.

Activist investors say they hope for better outcomes next year. Say-on-pay will be more established and could even be mandated across corporate America by Congress, under a new bill proposed this month by Sen. Charles Schumer, a Democrat from New York.

"Things take time to gain traction with investors," said Patrick McGurn, special counsel at RiskMetrics.

At the same time, the U.S. Securities and Exchange Commission on Wednesday proposed making it easier for shareholders to nominate directors for ballots of public companies. Investors owning as little as 1% of the 700 largest U.S. companies would be able to put their board nominees on the annual proxy ballot sent to all company shareholders, under the new SEC proposal.

It's still surprising that more investors haven't embraced governance changes this year given the amount of attention on issues surrounding executive pay and directors.

Investors might not be any more concerned about executive pay next year, especially if stocks continue to rebound. A 33% gain in the S&P 500 since early March has already caused plenty of investors to focus on the positive. And shareholder advocates say there is still a long way to go before change comes.

"This is the training-wheel stage for say-on-pay," McGurn said.