Nearly 20 years ago, Jimmy McMillan of the “Rent Is Too Damn High” party attracted 4,000 votes campaigning for mayor of New York and 13,000 for governor.
A different sort of voters today are coming out in larger numbers to rebuke Manhattan real estate CEOs for paying themselves too much.
This month, 43% of shareholders gave the thumbs-down to the $20 million in total compensation Vornado Realty Trust awarded to CEO Steven Roth. A 50.3% majority of shareholders voted against the $20 million pay package to Paramount Group CEO Albert Behler. Both companies’ share prices have fallen by two-thirds since early 2020.
SL Green’s Marc Holliday will be the next to face ornery voters at Monday’s annual shareholder meeting. The stock trades for less than half its prepandemic value, and two boardroom election advisers say Holliday’s $18 million pay last year was excessive.
“An unmitigated pay-for-performance misalignment is identified,” grumbled Institutional Shareholder Services. Glass Lewis gave SL Green’s pay practices an “F” grade and noted the developer paid more than peers while performing worse.
Institutional Shareholder Services and Glass Lewis recommendations can swing a board election because portfolio managers are required to follow their recommendations at some asset-management firms, said Piper Sandler analyst Alexander Goldfarb.
Non-binding shareholder votes about CEO compensation have been a regular feature at annual meetings since Congress mandated them for public companies after the 2008 financial crisis. Because CEO pay typically gets waved through with more than 90% support, a lower figure is a sign of serious dissatisfaction, and outright defeat has been known to finish a weakened CEO. Citigroup’s Vikram Pandit left after losing a say-on-pay vote in 2012.
Voting down pay enables investors to register disappointment. In the case of Manhattan’s office landlords, they’re miffed over falling earnings and smaller dividend payouts. Rising interest rates further squeeze profits because properties must be refinanced at higher rates.
Yet pay for those at the top doesn’t reflect those harsh realities.
Vornado not only doubled Roth’s pay last year but granted him a $2.2 million cash bonus tied to the redevelopment of 350 Park Ave., a project that isn’t expected to begin until 2025 and finish in 2032. The board said it rewarded Roth for “seeking and finding new opportunities.”
Paramount Group’s Behler was only the third CEO of a Russell 3000 company whose pay was voted down this year, according to data from consulting firm Semler Brossy, and the only one in real estate. Behler’s 2023 pay doubled the previous year’s take and got a boost thanks to the board awarding him new shares to replace older grants rendered worthless by the sharp decline in the company’s stock price.
SL Green’s Holliday has heard this sort of music before. In 2016 and 2020, a majority of shareholders opposed his pay, and last year 36% voted against it. His 2023 pay of $18.4 million, mostly in stock, was 16% higher than 2022. ISS criticized SL Green for “poor responsiveness” to last year’s vote over Holliday’s pay and said compensation-committee members Carol Brown, a law professor at the University of Richmond, and Lauren Dillard, CFO at Vista Equity Partners, should be voted off the board.
Dillard defended herself and other board members in a shareholder letter written with lead director John Alschuler.
“In 2023, our stockholder outreach program was the most extensive in our history,” they wrote. “The company also reaffirms that it will solicit further feedback on employment agreement matters from stockholders during its 2024 stockholder outreach.”
An SLG spokesman said: “ISS’ lens on compensation and governance is frequently inconsistent with the views of our shareholders. We are proud to have designed a pay program that enables a successful pay-for-performance culture at the company, as seen in the 48% total shareholder return that topped our office REIT peers in 2023.”
It’s nice to imagine shareholders can rein in excessive CEO pay, which symbolizes the disconnect between business leaders and their employees or customers. But it’s unlikely the jousting proves more consequential than McMillan’s quests for mayor and governor.
Companies are free to ignore non-binding results over pay. They’ve even been known to seat a member after she was voted off the board in what is normally a binding result. For all the anger over Roth’s bonus, nearly 60% of Vornado shareholders voted in favor of it.
“Boards can disregard the will of shareholders, and the uproar over management comp doesn’t always translate to the ballot box,” Goldfarb said. “Thus, we don’t think these results set precedents many would hope.”
Aaron Elstein , 2024-05-31 18:30:13
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