Say on pay gets its first test

Ledgerenquirer.com

March 25, 2008

Your opinion matters, Aflac shareholders,

and you have a say in setting next year's salary.

TSYS, Synovus owners, your chance may be next.

Aflac sends shareholders details of top executives' compensation

ahernandez@ledger-enquirer.com

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The proxy tells it all: Aflac Inc. Chairman and Chief Executive Officer Dan Amos was compensated more than $14.83 million last year.

And now, Aflac shareholders will have the chance to let the company know whether that's a fair package for Amos.

Aflac Inc.'s board of directors released Monday to shareholders its proxy filing with the U.S. Securities and Exchange Commission, which provides details on compensation packages for its top five executives.

This year's proxy also invites shareholders to cast a say-on-pay advisory vote, the results of which will be revealed at the company's May 5 annual shareholders meeting.

The nonbinding vote makes Aflac the first U.S. company to give shareholders a say on how much they think top executives should earn.

The Columbus-based company said this vote is in line with Aflac's long-standing pay-for-performance compensation policy as well as its efforts for transparency.

Activist investors

In November 2006, social investment firm Boston Common Asset Management LLC, which owns Aflac shares, submitted a proposal for a say-on-pay vote effective for the 2007 season.

In February 2007, Aflac announced it would be implementing the resolution, effective in 2009. Boston Common withdrew its proposal because the vote was approved. Aflac later bumped up the implementation to 2008. The company will not necessarily be obligated to change executive pay packages based on the vote.

What it might do is promote shareholder understanding around compensation levels, said Dawn Wolfe, social research and advocacy analyst at Boston Common.

'What we feel that it does and why it's important is it promotes constructive dialogue between the shareholders and the company,' Wolfe said.

If the company finds shareholders do not support compensation levels, it can go back to shareholders and find out why, she said.

It can also enhance board accountability. Aflac's compensation committee of the board of the directors are responsible annually for reviewing executive compensation plans, evaluating performance and determining pay.

The committee is assisted by an independent consultant, Mercer Human Resource Consulting, which, among other things, compares compensation packages with executives at similar companies in the industry.

Boston Common has already formally commended Aflac's efforts and given the thumbs up to the proxy's language around the say-on-pay vote.

'We felt very positive about it,' Wolfe said. 'It's really groundbreaking... It's very clear, and it's very concise. And it's certainly understandable, especially for the larger institutional investors that pay close attention to these issues -- and for the average investors.'

Compensation levels

When Aflac first caught wind of Boston Common's proposal, Amos was unsure as to why the vote was proposed.

'I didn't know why we got it, if we had done something wrong,' said Amos, who has served as Aflac CEO for the past 18 years. 'We've never had any complaints. The shareholders have been happy.'

Last year, Aflac delivered a 38.2 percent return to shareholders.

In Amos' 18-year-tenure, revenues have grown from $2.7 billion to $15.4 billion. During that same period, the company's market capitalization grew from about $1.2 billion in 1990 to more than $30 billion to date. And in 2007, Aflac's operating earnings per diluted share increased by at least 15 percent before the impact of currency translation for the 18th year in a row.

In an introduction to compensation discussion and analysis, the Aflac proxy reads: 'The company's compensation philosophy is to provide pay-for-performance that is directly linked to the company's results. We believe this is the most effective method for creating shareholder value, and that it has played a significant role in making the company an industry leader.'

'Compensation, to me, is not as big an issue as performance,' Amos said. 'Because no matter how much you make... if you cut it in half, it's still too much if the company is not performing. You don't want them at any price. You don't want a football coach who's had a losing season. You want a winner, whether it's a coach or a CEO.

'If they have a great season -- meaning stock prices or championship games -- they have to perform,' Amos said. 'There's no in between. It's really more of a pass/fail system.'

Between November 2006 and February 2007,

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