The number of shareholder resolutions seeking more disclosure about fair pay and working conditions blossomed during the Trump administration but has fallen back sharply in 2021, even as fair employment proposals (covered in the next section on Diversity at Work) have ballooned in the wake of the Black Lives Matter movement.
While last year’s proposals were split evenly between fair pay and working conditions, this year the emphasis is again more squarely on fair pay. (Table, p. 42, lists all 26 resolutions.)
New are proposals about paid six leave, but none will go to votes given SEC challenges that are succeeding. Earlier proposals about mandatory arbitration and the ways in which it hides sexual harassment and violence in the workplace have largely evaporated.
Fair pay proposals ask about high executive compensation compared to lower wage workers continue, though, while others focus on pay differentials for women and people of color. Women, and women of color, continue to earn much less than their white male counterparts, but shareholder votes on pay disparity proposals fell significantly in 2020. Many investors appeared to decide that the information companies have started to release about pay is enough, even though for the most part they still do not publish the global median pay differential figures the proposals request.
Recent decent work proposals reflect priorities articulated by a group of two dozen large institutional investors called the Human Capital Management Coalition, sponsored by the UAW Retirees Medical Benefits Trust, which in 2017, petitioned the SEC to require more disclosure of information about a company’s workforce and human resources policies. Members of HCMC include Trillium Asset Management, the Office of the New York City Comptroller, the AFL-CIO Office of Investment and other shareholder proponents, among others. With new leadership in Washington and expressions of support for more ESG disclosure, there are signs that the SEC may take up at least some of the coalition’s recommendations.
Fair Pay
Half of the 15 fair proposals concern executive pay differentials, from individual proponent Jing Zhao, Trillium Asset Management, the United Steelworkers and Myra Young. The other half discuss differentials based on gender and race/ethnicity, filed by Arjuna Capital, Proxy Impact and the Shareholder Association for Research & Education (SHARE), a Canadian shareholder rights organization.
CEOs: The United Steelworkers have returned for the fourth time to ask 3M’s board to
take into consideration the pay grades and/or salary ranges of all classifications of Company employees when setting target amounts for CEO compensation. The Compensation Committee should describe in the Company’s proxy statements for annual shareholder meetings how it complies with this requested policy. Compliance with this policy is excused if it will result in the violation of any existing contractual obligation or the terms of any existing compensation plan.
The proposal earned 11.1 percent in 2020, 10 percent in 2019 and 8 percent in 2018. Under new SEC rules, it must earn at least 25 percent support this year to qualify for resubmission.
Trillium Asset Management is asking the same thing at retailers Burlington Stores and TJX, minus the reference for an explanation of compliance. It is new at the former company but a resubmission at TJX, where it received 9.4 percent in 2020; earlier, NYSCRF withdrew the same proposal after an agreement in 2018.
Both Trillium and the Steelworkers argue that peer group benchmarks used by boards to set pay have driven it up and that companies should change their practices, reasoning that excessive pay hurts organizational performance by undermining “collaboration and teamwork,” morale and productivity for those outside the senior executive suite. The proponents cite research from MSCI and a Harvard study that found consumers said they would prefer to buy from companies with flatter pay differentials; disclosure of the CEO to median worker pay differential became mandatory in 2018.
Otherwise, one of the four proposals from individual investor Jing Zhao has already gone to a vote at Visa, earning 4.5 percent support (not enough under the new resubmission thresholds to be resubmitted). It asked the company to change its “principles of executive compensation program to include CEO pay ratio and other factors.” This proposal also is on the ballot at Applied Materials for a vote on March 11; the SEC disagreed with the company’s contention the proposal is moot. A similar resolution received 5.5 percent of the vote at Apple, asking it to “improve the executive compensation program to include NEOs pay ratios and other factors.”
Zhao was unsuccessful in another proposal, however, where he suggested that Gilead Sciences should “reduce the CEO Pay Ratio by 5-10% each year until it reaches 20 to 1.” The SEC agreed this is an ordinary business matter because of “micromanagement.”
External costs of executive compensation: Myra Young, who has other proposals requesting reports on specific external costs (see p. 50 and 60) wants a report from Marriott International “on the external social costs created by the compensation policy of our company...and the manner in which such costs affect the vast majority of its shareholders who rely on overall market returns.” She is concerned about pay inequity in general and its societal impact. The proposal is part of a new campaign in 2021 coordinated by The Shareholder Commons. Marriott is arguing at the SEC that this is ordinary business and too vague. (Other proposals from TSC are on p. 30, 50, 64 and 69.)
Gender and race: Arjuna Capital and Proxy Impact have filed dozens of resolutions in the last several years trying to persuade companies to report on differential pay rates for women and people of color. At first the resolutions asked only about policies and goals “to reduce the gender pay gap” and companies took up the suggestion with alacrity, producing many withdrawals. But common ground became much harder to find when the request shifted in 2019 to request reporting on the global median pay differential—”the difference between male and female median earnings expressed as a percentage of male earnings,” as defined by the Organization for Economic Cooperation and Development. While companies have made some pledges and disclosures about pay equity generally, they have been far more reluctant to disclose these statistics. Median pay data reveal that even when men and women—and people of color—earn similar pay for the same job (“pay equality”), they are almost always deeply underrepresented in higher echelon jobs where pay is higher (“equal opportunity”).
Six of the 12 2020 pay proposals did not earn enough to qualify for resubmission, although proponents also reached agreements at eight more firms. It may be that investors at large felt some disclosure about pay equity, or corporate statements about the need for fairness, was enough—even if this did not address the proponent’s focus on representation at all levels of employment.
Five of the seven pending gender/minority pay proposals are resubmissions and each must earn more than in the past to qualify for 2022 filing. They are before Adobe (12.5 percent last year in its third year), Amazon.com (15.3 percent for its second vote), Bank of New York Mellon (7.9 percent for a second vote), CIGNA (21 percent last year and 35.6 percent in 2019) and Intel (9 percent in its fourth year). The resolutions ask for annual reports “on median pay gaps across race and gender, including associated policy, reputational, competitive, and operational risks, and risks related to recruiting and retaining diverse talent.”
Somewhat more specific formulations are before Biogen and Walmart this year for the first time. At Biogen it calls for an annual,
quantitative data assessing Biogen’s gender pay gap...A report adequate for investors to assess company strategy and performance, including relative opportunities for women to attain higher paying positions in the company, would include the percentage mean and median pay gap between all male and female employees, across race and ethnicity where appropriate, and would include base, bonus and equity compensation.
SHARE takes a similar approach at Walmart, seeking a report from Walmart on its
plan to address the gender and racial pay gap within its workforce. At a minimum the report should include:
Relevant details about the Company’s strategy, programs and policies planned or in place;
Assessment of program effectiveness, through the disclosure of the median pay gap between employees from historically equity- seeking groups, and other relevant metrics.
Benefits
A new resolution has asked CVS Health, Kohl’s, Kroger, McDonald’s and Yum Brands “to analyze and report on the feasibility of including the paid sick leave policy adopted in response to COVID-19” and made effective in March “as a standard employee benefit not limited to the duration of the pandemic.” At McDonald’s and Yum Brands, it also asked for “incentives for franchisees to adopt such a policy.”
At Walmart, another proposal is more expansive, asking for a feasibility study on:
“providing two weeks of paid sick leave, as well as two weeks of paid leave to care for a sick or quarantined family member or a child whose school or childcare provider is closed or unavailable due to illness, as a standard Associate benefit not limited to COVID-19.
Withdrawal: As You Sow added a provision on telemedicine and withdrew at Dollar General when the company agreed to waive telehealth co-pays.
SEC action: The SEC has agreed with arguments from CVS, Kohl’s, Kroger and Yum Brands that this is a matter of ordinary business; a similar challenge is at Walmart and an omission there seems likely. The only other company where the proposal is pending is Kroger, which does not hold its meeting until late June.
Working Conditions
Covid-19 pandemic: Three of the six proposals about working conditions also take up concerns raised by the global pandemic, and one at Walmart has survived an SEC challenge.
The New York City pension funds would like a report on worker health and safety from Amazon.com “on the adequacy of Amazon’s efforts to reduce or mitigate health and safety risks from the coronavirus pandemic” and board oversight. The proposal notes safety challenges for workers existed even before the pandemic hit warehouses, with Whole Foods employees and for contracted delivery drivers—which were exacerbated by the pandemic’s exigencies and a flood of new employees. The proposal notes the workforce grew by some 430,000 employees, not including temporary holiday workers and another half a million contracted drivers. It opines that investors had questioned the sustainability of the company’s business model even before the pandemic, noting high injury rates. The proponent acknowledges improvements and the company’s $10 billion investment in workplace safety, but says hard performance metrics about its effectiveness are needed, with more details. An independent committee would help ensure stakeholders benefit and serve as “a standard in the industry.”
APG Asset Management is the co-lead filer of the proposal, discussed in a December 17 press release from NYC Comptroller Scott Stringer.
HUMAN RIGHTS PROTECTIONS FOR WORKERS IN FOOD SUPPLY CHAINS VULNERABLE TO COVID-19
SISTER GLORIA OEHL, OSF
Franciscan Sisters of Allegany, NY
MATTHEW STARK BLUMIN
General Counsel, The Coalition of Immokalee Workers
The essential workers who harvest, pack, and process our food are at heightened risk of exposure to, and death from, Covid-19. More than 87,000 meatpacking workers, food processing workers, and farmworkers have tested positive, and a recent study showed that agricultural workers have suffered the highest Covid-19 death rate of any occupation. This disproportionate vulnerability to Covid-19 must also be understood in the context of well-documented human rights violations in U.S. agriculture, including modern-day slavery and sexual abuse.
A similar proposal from the Franciscan Sisters of Allegheny, N.Y., is at Wendy’s. It also calls for a report, but its resolved clause is far more detailed, specifying the report should address:
Wendy’s Supplier Code of Conduct and the extent to which Wendy’s Quality Assurance audits and third-party reviews effectively protect workers in its food supply chain from human rights violations, including harms associated with COVID-19. This report should include:
Whether Wendy’s requires its food suppliers to implement COVID-19 worker safety protocols (“Protocols”), and, if so, the content of the Protocols, as well as the section(s) of Wendy’s Quality Assurance audit instrument relating to the Protocols and/or the Code’s Human Rights and Labor Practices Expectations8 (“Expectations”);
The number of times Wendy’s has suspended one of its meat or produce suppliers (“Suppliers”) for failing to meet Expectations and/or Protocols;
A list of all third-party auditors approved by Wendy’s to monitor adherence to Expectations and/or Protocols, the total number of Supplier locations, how often Wendy’s requires third-party audits on-site at each Supplier location for adherence with Expectations and/or Protocols, and the number of Supplier locations so audited in the last year including the number of Supplier workers personally interviewed at each location;
Whether Wendy’s ensures Suppliers’ workers have access to a third-party grievance mechanism, with the authority to order a remedy, for reporting violations of Expectations and/or Protocols, and, if so, the required procedures, number of grievances filed by Suppliers’ employees in the last year, and outcomes of all such grievances.
Individual investor Cynthia Murray proposes that Walmart set up a Pandemic Worker Advisory Safety Council,
composed of hourly Associates, to provide advice to the Board {including any relevant Board committee) upon request on pandemic related workforce issues, including health and safety measures, whistleblower protection, and paid sick leave. Walmart would have discretion to disband the Council when no pandemic has been declared.
SEC action—Amazon and Wendy’s both are contending at the SEC that it has substantially implemented the proposal and that it relates to ordinary business since it is about legal compliance. While the SEC has yet to respond to these challenges, it disagreed with Walmart’s argument the matter concerns ordinary business, in what may be a harbinger for the other two proposals.
Human capital management: SHARE is more focused on general practices in the workplace and at franchisees and proposed a report from Starbucks that would report on:
Information on the Company’s overall approach and board-level oversight of human capital management in the context of emerging workforce related risks and opportunities in the retail coffee industry; and
Comprehensive workforce metrics that effectively demonstrate the success and challenges the company faces in its management of human capital.
SHARE withdrew before any SEC response to the company’s contention that it is moot and concerns ordinary business, noting continued discussion about the release of more workforce metrics.
Sexual harassment: Arjuna Capital returned to Comcast with a proposal on sexual harassment that survived an SEC challenge last year and earned 13.1 percent support. It asks for “an independent investigation” and report “on risks posed by the Company’s failures to prevent workplace sexual harassment. Controversy erupted at Comcast about sexual misconduct by Today show host Matt Lauer, who was fired, and critics called the company’s subsequent investigation too narrow and not independent.
