This excerpt taken from the CVS DEF 14A filed Mar 25, 2005.
Non-Deductible Executive Compensation to Shareholder Vote
RESOLVED, shareholders recommend that our Corporations by-laws be amended by adding the following new Section:
Section A.1 Executive Compensation. From the date of adoption of this section no executive officer of the Corporation shall receive annual compensation in excess of the limits established by the U.S. Internal Revenue Code for deductibility of remuneration for such executive officer, without approval by a vote of the majority of the stockholders within one year preceding the payment of such compensation. The only exception would be interference with un-removable contractual obligations prior to this proposal.
For purposes of the limit on executive compensation established by this Section, the Corporation may exclude compensation that qualifies either as performance-based compensation or as an incentive stock option within the meaning of the Internal Revenue Code only if:
(a) in the case of performance-based compensation, the Corporation shall have first disclosed to stockholders the specific performance goals and standards adopted for any performance-based compensation plan, including any schedule of earned values under any long-term or annual incentive plan; and
(b) in the case of incentive stock options, the Corporation shall record as an expense on its financial statements the fair value of any stock options granted.
This proposal was submitted by William Steiner, 112 Abbottsford Gate, Piermont, NY 10968.
This proposal would require that our company not pay any executive compensation in excess of the amount the Internal Revenue Code permits to be deducted as an expense for federal income tax purposes, without first securing shareholder approval.
Currently, the Code provides that publicly held corporations generally may not deduct more than $1 million in annual compensation for any of the companys five highest-paid executives. The Code provides an exception for certain kinds of performance-based compensation.
Under this proposal our company would be able to pay performance-based compensation in excess of the deductibility limit, so long as the company has disclosed to shareholders the performance goals and standards the Board has adopted under these plans. This proposal also provides an exception for incentive stock options, if the Board has recorded the expense of such options in its financial statements.
A proposal similar to this was submitted by Amanda Kahn-Kirby to MONY Group and received a 38% yes-vote as a more challenging binding proposal at the MONY 2003 annual meeting. The 38% yes-vote was more impressive because:
1) This was the first time this proposal was ever voted.
2) The proponent did not even solicit shareholder votes.
I think it is reasonable to require our company to fully disclosure to shareholders both the costs and the terms of its executive compensation plans, if the Board wishes to pay executives more than the amounts that are generally deductible under federal income taxes.