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Originally published Saturday, June 25, 2011 at 9:56 PM

Shareholders passing 'say on pay' advisory votes at Northwest companies

Widespread shareholder acceptance of a "say on pay" advisory isn't really surprising, says the author of a book on executive compensation. Share prices are up. Investors are happier.

Seattle Times business reporter

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This year, for the first time, federal law requires companies to give shareholders a "say on pay" — a nonbinding, advisory vote at the annual meeting on executive compensation.

So far, most pay packages have won overwhelming approval. Less than 2 percent of Starbucks' shareholders, for instance, objected to the salaries, bonuses, stock awards and perks provided to CEO Howard Schultz and other top executives in 2010.

Such widespread acceptance isn't really surprising, said Bruce Ellig, a retired Pfizer human-resources vice president and author of a book on executive compensation.

Share prices are up. Investors are happier.

"When the stock heads south and compensation heads north, that's when you run into resistance," Ellig said.

That's precisely what played out this spring at Umpqua Holdings, parent of Umpqua Bank and the only Northwest company to suffer a negative "say on pay" vote.

More than 60 percent of the Portland company's shareholders voted against its executive-compensation program, which included a 104 percent raise in 2010 for President and CEO Raymond Davis.

His total compensation rose from less than $1.3 million to nearly $2.6 million, according to research firm Equilar. The largest component of that increase came as cash bonuses — some for financial performance, some for overall leadership.

Shareholders gave their thumbs-down to the pay packages for Davis and other executives after Institutional Shareholder Services (ISS), an influential proxy advisory firm, recommended a "no" vote, citing what it called a "disconnect" between Umpqua's financial performance and its executives' pay.

ISS said Umpqua's total return to shareholders had dropped more than 7 percent last year, and that a $100 investment in the company in 2006 was worth just $47 at the end of 2010.

Umpqua also has underperformed similar banks, ISS said.

Umpqua said ISS' comparisons were apples and oranges.

In a regulatory filing after the vote, it said the advisory firm hadn't factored in a steep pay cut Davis took in 2009.

The bank made a profit last year after losing money the year before, management added.

And it was strong enough in 2010 to acquire three failed banks, with the federal government's blessing, and establish a significant presence in the Puget Sound area.

"We want our compensation to be tied to performance, and we felt it was," spokeswoman Eve Callahan said.

While the "say on pay" vote wasn't binding, Umpqua said it would "look at ways to more closely align executive compensation with total shareholder return."

This past week, Umpqua announced Davis' 2011 stock and stock-option awards, previously slated to vest automatically over four years, instead would hinge on how the company's shares perform in comparison with other regional banks.

While that policy shift was in the works, however, two Umpqua institutional investors — Illinois union pension funds — filed a lawsuit last month against the bank's directors and executives in federal court in Portland, seeking to recover the executives' 2010 raises.

"Just 1 or 2 percent of companies failed this [say on pay] test," said Darren Robbins, one of the lawyers for the pension funds. "This company falls in that category."

Eric Pryne: 206-464-2231 or epryne@seattletimes.com

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