Two years ago, while speaking before the Council of Institutional
Investors, AFL-CIO President John Sweeney argued that labor unions
must use their influence as shareholders to rein in chief
"We must challenge the... widening gap between the pay of a
handful of top executives and everyone else in American society,"
Sweeney told the coalition of public-employee, union, and corporate
pension funds that collectively control some $800 billion in assets.
This year, the gloves came off.
Union pension funds and union-related groups are flexing their
muscles on Wall Street by filing a slew of shareholder resolutions
seeking to curb, cap or control the compensation of the nation's
corporate executives. They join other activists who have made
executive pay a big issue in recent years.
One success so far for the unions: UAL, which is employee-owned,
agreed in January to a union proposal that will tie a portion of top
executives' compensation to worker satisfaction, starting next year.
"Labor has always been resentful of CEO pay, but now unions are
becoming much more sophisticated in their objections and their
presentation," said Alexandra LaJoux, editor of The Director's
Monthly, the newsletter of the National Association of Corporate
Directors in Washington, D.C.
Not everyone agrees with the movement.
"What we are really seeing right now is the cost of doing
business," Ted Jadick, a partner at Heidrick & Struggles, said about
spiraling salaries. "If you are looking for a top CEO, and you have
to find that talent in an open and competitive marketplace, then you
must pay the market price. That means offering competitive
In 1995, nine union-related resolutions were filed with the
Securities and Exchange Commission concerning executive
This year, 23 proposals were filed. Such shareholder resolutions --
targeting skyrocketing executive pay, golden parachutes, and stock
option packages -- are proposals that require approval by
One example: the AFL-CIO's Staff Retirement Fund, which wants to
tie the price of stock options awarded to Dean O'Hare, the chairman
and chief executive of Chubb, to the company's performance.
O'Hare earned more than $2.8 million last year, including a bonus
payment and other compensation, according to a 1999 executive survey
in The Wall Street Journal. The AFL-CIO pension fund resolution
maintains Chubb's chief executive could gain an additional $3.8
million from last year's grant of 99,250 stock options "by achieving
a mere 5 percent annual shareholder return over the term of the
"We want to get at the fact that this company and others are
giving out stock options no matter what the CEO does or what the
company does," said William B. Patterson, the AFL-CIO's investment
expert. "When the stock market goes up, they are rewarded regardless
of their actions."
Not surprisingly, Chubb and its compensation committee are opposed
to the measure. In a written statement, the insurer argued that
indexing, or linking O'Hare's stock options to company performance,
would not be beneficial to shareholders.
"Indexed options are rare among U.S. corporations," Chubb said in
a statement. "The use of indexed options would depress and
artificially add volatility to the corporation's earnings."
Most shareholder resolutions rarely rally enough votes to pass. …