Shareholders at Morgan Stanley, Bank of New York Reject 'Say on Pay'

Morgan Stanleyand Bank of New Yorkshareholders rejected proposals that would give them an advisory vote on executive pay, but supporters for "say on pay" said it was a strong start.

Corporate governance groups this year want companies to let their shareholders weigh in on executive compensation packages, which have soared to unprecedented heights in recent years. Shareholders hope such measures, already in place in the UK and other countries, would help keep a lid on CEO pay.

At Morgan Stanley , which held its annual meeting in Purchase, N.Y., 37% of shares were voted in favor of "say on pay." The proposal fared better at Bank of New York , where 47.3% supported the measure.

"I think it's a first good effort. It would be hard to get past the performance Morgan Stanley posted," said Richard Ferlauto, pension policy director at the American Federation of State, Country and Municipal Employees, which sponsored the proposal.

AFSCME and governance groups submitted proposals to dozens of U.S. companies. Morgan Stanley and Bank of New York shareholders were the first to cast votes in the shareholder meeting season now underway.

"No matter how you look at it, these are strong showings, particularly at Bank of New York. It indicates we're getting support among the mutual funds," Ferlauto said.

Morgan urged shareholders to reject the proposal, saying investors can already express their views to directors; that an up-or-down vote does not give the board specific information and that any limits on pay could make it less competitive in attracting executives.

Better Year

Tempers have cooled among Morgan Stanley investors since the first half of 2005, when former CEO Philip Purcell left the company under pressure after several years of weak performance. Criticized for lax oversight, the board drew more fire when it awarded Purcell severance totaling $52 million and generous "golden parachutes" to other departing Purcell loyalists.

As a result, shareholders last year defied the company and approved a proposal to make golden parachutes subject to shareholder vote.

AFSCME this year argued that Mack's pay package had flaws, including several costly tax "gross up" benefits. The union group also complained that Mack, after less than a year into his tenure, realized $39 million from options granted as long-term incentives.

Yet shareholders were more forgiving of Mack, who took over as CEO in June 2005 and received $41.4 million in compensation last year. In his first year, Mack revived a Wall Street giant that had lost ground to Goldman Sachs, posting record results and turning around weak brokerage and money management businesses.

Morgan shares rose 44% last year, lagging Goldman, but outperforming the Amex Securities Broker-Dealer Index.

Bank of New York paid CEO Thomas Renyi $13.6 million in compensation last year, up 37% over a period when he engineered the $16.5 billion merger with Mellon Financial. The company's stock rose 25% last year, outperforming the Philadelphia KBW Bank Index.

Meanwhile, 58% of shares voted for a proposal to adopt simple majority voting in almost every circumstance. It was the second year shareholders approved the non-binding measure, which the board will take under consideration.

"If the Morgan Stanley board does not act to adopt this proposal, Institutional Shareholder Services could recommend a vote against directors in 2008 for their non-responsiveness," said John Chevedden, a supporter of the Rossi proposal.

ISS is a proxy advisory firm with great influence over big investors.

Morgan Stanley, which opposed the proposal from California investor Emil Rossi, argued that it eliminated supermajority requirements for most cases last year.