In response to shareholder demands, online auction giant eBay has agreed to reduce a supermajority requirement and move toward board declassification.

In a press release this week, the California-based company said its board had amended its bylaws to drop the vote requirement for investors to amend bylaws from 66.6 percent to a majority of outstanding voting stock.

In addition, eBay said that the board's corporate governance and nominating committee has recommended that the board seek investor approval at its 2012 annual meeting to eliminate staggered board terms.

The company took these actions after the filing of shareholder proposals this year. Shareholder activist John Chevedden submitted a resolution to repeal the company's supermajority rules. Although management opposed the measure, the resolution received 64 percent support (based on votes cast "for" and "against") at the company's April 28 annual meeting.

The Nathan Cummings Foundation (NCF) also filed a declassification proposal at eBay, but later withdrew it. The NCF proposal is part of a broader 2011 campaign coordinated by the American Corporate Governance Institute, which also includes the Florida State Board of Administration. According to the institute, which is led by Harvard University professors Lucian Bebchuk and Scott Hirst, this campaign has resulted in seven S&P 500 companies passing charter amendments to declassify their boards, six S&P 500 companies agreeing to submit management declassification proposals for approval at their 2012 annual meetings, and passage of shareholder declassification proposals, with 82.2 percent average support, at nine S&P 500 companies. Overall, this campaign could result in a 15 percent decrease in the incidence of classified boards at large-cap companies, the institute said.
 
A significant number of S&P 500 firms have heeded shareholder demands to declassify since 2005, when 53 percent of those companies had staggered board terms. Currently, just 31 percent of S&P 500 firms have classified boards, and another 3.4 percent are in the process of moving toward annual elections for all directors, according to ISS data.  

During the first year of advisory votes on executive compensation under the Dodd-Frank Act, investors have overwhelmingly endorsed companies' pay programs, providing 91.2 percent support on average (based on "for" and "against" votes).

This support exceeds the 89.2 percent average approval in 2010, when "say on pay" votes were mandated only at U.S. government-supported financial firms. While the median total compensation for CEOs at S&P 500 firms increased by more than 33 percent last year, those pay increases haven't translated into more shareholder opposition, in part because of greater engagement by issuers. Dozens of companies have released supplemental proxy materials to address investor concerns or made late changes to their pay practices to win shareholder support.

So far this season, S&P 500 companies have averaged 88.6 percent support, which is slightly less than the 91.8 percent approval for issuers in the Russell 3000 index, according to ISS data as of June 14. At the sector level, large-cap industrial companies had the lowest average support of 87.1 percent, while large consumer retail firms received the highest approval at 90.7 percent. Large financial firms, which traditionally have received more scrutiny over pay, had the second-highest approval average of 89.7 percent. Within the Russell 3000 index, the energy sector received the lowest level of average support (88.8 percent), while consumer retail firms again received the highest average approval (92.8 percent).

The average investor support for shareholder resolutions on environmental and social (E&S) issues continues to rise.

During the 2011 spring proxy season, there was 20.5 percent average approval (as of June 8) for these proposals, the first time this support level had reached the 20 percent mark. This average compares with 18.2 percent at the same time a year ago, according to ISS data. By contrast, the average support for E&S proposals was just 8.7 percent a decade ago.

This year's vote average includes four investor proposals that received majority support (based on "for" and "against" votes), a new record for E&S issues. These proposals include:

•  KBR: a request to include sexual orientation in the company's nondiscrimination policy (61.7 percent approval);
• Tesoro: a request for a report on refinery safety (54.3 percent);
• Sprint Nextel: a request for a report on political contributions (53.3 percent); and
• Ameren: a request for a report on coal combustion waste (52.7 percent).

Additionally, a proposal at Energen requesting a report on the environmental impacts of the hydraulic fracturing method increasingly used in natural gas production won 49.5 percent approval, barely missing receiving majority support, while three proposals requesting a report on political contributions (at Halliburton, R.R. Donnelley, and Lorillard) earned more than 45 percent support. 

During shareholder meetings this week, investors rejected the executive compensation practices at Nabors Industries and lodged a significant protest vote at Chesapeake Energy. 

Nabors is the 32nd U.S.-listed company to fail to win majority support for its pay practices this year, according to ISS data. The Houston-based oil drilling company, which is incorporated in Bermuda, has underperformed its industry peers on one-, three-, and five-year total shareholder returns, while the CEO's $13.5 million in total 2010 pay, despite a decrease from 2009, still was significantly higher than the $7 million median at peer companies. 

A director at Nabors, Myron Sheinfeld, also failed to receive majority support at the company’s June 7 annual meeting. He is the first S&P 500 director to meet this fate this year; in addition to 29 directors at Russell 3000 firms, according to ISS data. This vote appears to be a reaction to the board’s failure to implement a shareholder-filed declassification proposal that received 75 percent of votes cast in 2010. 

Also at this week’s meeting, Nabors investors strongly endorsed shareholder proposals seeking board declassification (75 percent support) and majority voting (63 percent approval), and defied management’s recommendation for a triennial advisory vote on pay, opting instead for an annual frequency. Auditor ratification was the only agenda item at Nabors where a majority of investors backed management. 

BioMed Realty Trust, Cadiz Inc., and Tutor Perini are among the latest Russell 3000 companies that have failed to receive majority support for their executive compensation practices.

At all three companies, it appears that investors had concerns over the linkage between executive pay and corporate stock performance. At San Diego-based BioMed, the CEO's total pay increased by 23.6 percent, while the company's stock performance has trailed its real estate industry peers over the past one, three, and five years.

At Cadiz, a land-and-water resources firm headquartered in Los Angeles, it also appears that investors were not satisfied by the company's response to more than 30 percent withhold votes in 2010 against two compensation committee members, Murray H. Hutchison and Raymond J. Pacini. This year, those directors, and a third pay committee member, received more than 49 percent opposition. These results suggest that institutional investors will use both forms of protest--voting "no" during a "say on pay" vote and withholding support from pay panel members--in cases where companies have not responded to past shareholder concerns.

At Tutor Perini, a California-based construction and engineering firm, the CEO's compensation declined in 2010, but his $9.9 million pay package still was well above the $5.5 million median at peer companies. In addition, the compensation committee lowered the pre-tax income target for the CEO to earn performance awards. The 2010 target was $156.3 million, down from the prior year's target of $211.6 million. In addition, the CEO continues to receive significant perks, including $139,400 in vehicle and driver use and $138,100 in accounting and tax services in 2010.

Overall, 31 Russell 3000 companies have reported failed advisory votes this year, according to ISS data. This group amounts to 1.6 percent of the 1,923 issuers that have held pay votes this season (and where ISS has vote results).

Meanwhile, investors continue to support an annual frequency for future advisory votes by a wide margin. So far, annual votes have won majority (or plurality) support at 1,464 companies, as compared to the 302 firms where a triennial frequency earned the greatest support, according to ISS data as of June 7. A biennial frequency received the most support at 14 issuers.

A shareholder proposal seeking an investor vote on future “golden parachute” arrangements earned 57.8 percent support (based on votes cast “for” and “against”) at the May 27 annual meeting of Lowe’s Companies.

The proposal was filed by the Trowel Trades S&P 500 Index Fund, which is seeking a vote on future severance arrangements that would provide benefits that exceed 2.99 times the sum of the executive’s base salary plus bonus. The North Carolina-based home improvement retailer previously adopted a policy that provides for shareholder ratification of any new agreement that provides for a total cash value severance payment exceeding 2.99 times the sum of the salary plus bonus, but this policy excludes tax gross-ups, which can be significant.

Overall, 80 U.S. shareholder proposals have received majority support this proxy season, according to ISS data. Other recent votes include 84.5 percent support for declassification at Neurocrine BioSciences, a 86.9 percent vote for declassification at Thermo Fisher Scientific, and 78.3 percent approval for majority voting at Tessera Technologies. 

Meanwhile, more issuers are filing proxy materials that include stand-alone golden parachute votes, as required by the Dodd-Frank Act for companies that seek shareholder approval for mergers and other transactions. Among those companies are: Lawson Software (June 29), K Sea Transportation (July 1), GS Financial (July 7), and Digital Angel (July 14). In addition, the agenda for the June 14 meeting of BioMimetic Therapeutics includes a bundled "say on pay"/golden parachute vote, one of the first ballot items of its kind this year.