Union seeks to limit Aetna execs' pay

A trade union with mutual fund money invested in Aetna Inc. plans to ask shareholders at the insurance company's upcoming annual meeting to set strict limitations on the compensation of its top executives.

The proposal by the Boston-based United Assn. of Plumbers, Pipefitters & Sprinklerfitters, to be voted on April 30 in Aetna's headquarters city of Hartford, Conn., would advise Aetna's compensation panel to impose caps on executive salaries, bonuses and long-term incentive payouts.

The union wants Aetna to limit the yearly salary of Aetna's CEO to $1 million. In addition, the proposal would limit annual bonuses to 100% of executives' salaries and specifies the bonuses must be awarded according to "well-defined quantitative [financial] and qualitative [nonfinancial] performance measures."

The measure seeks to limit long-term equity compensation to $1 million and would require any long-term awards to be issued as restricted stock, not stock options as is currently practiced. No long-term rewards would be given in the absence of "justifiable performance criteria and challenging performance benchmarks."

The union, in a message to shareholders in Aetna's proxy statement, said pay to high-level executives at most American companies, including Aetna, has become "excessive, unjustified, and contrary to the interests of the company" and investors.

Aetna Chair and CEO John W. Rowe, MD, received a $1,042,146 salary last year, a $2.2 million annual bonus, new stock options that eventually could be worth an estimated $5.6 million, a $7 million cash payout of stock options under the long-term compensation program and other compensation of nearly $400,000. President Ronald A. Williams received a salary of $914,000, a bonus of $1.8 million, new stock options estimated to be worth $4.3 million, a long-term incentive payout of $6.3 million and other compensation of $79,430.

Aetna's board of directors opposes the union proposal and says the current system of letting a compensation panel determine executive pay works well. "Our feeling is this proposal really takes a very rigid, one-size-fits-all approach to compensation, which is not appropriate or in the interest of Aetna shareholders," said Fred Laberge, Aetna spokesman.

Aetna has said its salary and bonus levels are necessary to attract and retain talented leaders and are warranted because the company has undergone a strong turnaround that has benefited its shareholders. Aetna's net income for 2003 was $933.8 million after a net loss of $2.5 billion in 2002; net income per share was $5.91 compared with a net loss per share of $16.49 the year before. To trim expenses, the company slashed about 10,700 employees from its work force in 2002 and announced about 700 layoffs last year.

The executive pay proposal to Aetna shareholders is one of many compensation-related measures placed by the plumbers union on shareholders' ballots at about 50 corporations this year, said Craig Rosenberg, president of Northfield, Ill.-based ProxyVoting Plus. Rosenberg's firm advises pension funds, including the plumbers', on stances they can take vis-à-vis corporate management to increase openness and accountability.

"Quite remarkably, the rate of executive pay is so incredibly high and so disproportionate to other workers at the companies, and a lot of that is due to the explosive growth of stock options," he said. "Stock options, I think a lot of people agree, have created ... harmful pressures on senior management to look at stock price instead of long-term performance metrics."

Rosenberg acknowledged that compensation reform measures have historically rarely been voted in by shareholders, partly because many ballots are cast by fund managers representing large institutional investors who have supported the management of the corporations. But he said the union hopes to push corporations in the direction of compensation reform even if its proposals fail.