EA resists call to shrink golden parachutes
Electronic Arts is not giving up the chance to offer its top executives massive severance payouts, despite recent pressure from some perennially provocative shareholders.
Driving the news: Late last week, the publisher of Madden and The Sims tweaked its executive pay policy, placing a partial cap on termination pay. But the limit falls far short of a proposal that in early August nearly won majority support from stockholders.
- According to EA's new policy, future employment agreements with top executives will limit the cash part of any severance plan to no more than 2.99 times the total of the execs’ salary and target annual bonus.
- The proposal that shareholders voted on, pitched to rein in EA’s “tendency to overpay management” or offer the “wrong” incentives, would have applied that 2.99x cap, but for cash and stock-based severance payouts.
- With either plan, severance offers beyond the cap would be subject to shareholder approval.
What they’re saying: “It is a Trojan horse, which looked like a gift to those who don’t pay attention," activist investor James McRitchie tells Axios of EA’s new policy. He co-authored the shareholder proposal with his wife, Myra Young.
- “Cash is nothing compared to equities.“
- Current EA execs, including CEO Andrew Wilson, have severance agreements that already meet EA’s new cash threshold. But the payouts they’d get upon a “qualifying termination” — read, they’re out for something other than misconduct — would exceed the cash-and-stock limits McRitchie and Young proposed.
- For example, an exiting Wilson would receive $7.8 million in cash severance. That’s less than 2.99x his salary and target annual bonus. But add in the $27 million in stock he’d also get when terminated and he’d be far over the cap called for by the couple.
The big picture: EA is far from alone in issuing its top executives lucrative contracts with large golden parachutes, though it has faced unusually impactful backlash from stock owners in recent years.
- Shareholders voted against annual compensation plans for the company’s top executives in 2020 and 2021, eliciting concessions to limit some bonuses.
- The company has argued that its payment plans are essential to retain and recruit top leaders. Letting shareholders vote on large severance packages "could place us at a severe competitive disadvantage," the company said in a filing last month.
Between the lines: McRitchie and Young are prolific authors of shareholder proposals, trying to enact change at hundreds of companies through the fairly esoteric mechanism of compelling annual shareholder votes.
- The couple submitted nearly 80 shareholder proposals to major corporations this year, McRitchie says. By his count, 31 of them were withdrawn because the companies came to an agreement with them. Nine made it to a vote and won.
- They’ve issued proposals about EA before and, in their other notable action in the gaming sector, got a win for a 2020 proposal for Activision to regularly disclose political contributions.
The bottom line: One of the couple’s goals is to improve the economic system for all, citing research that found that GDP went up when less wealth was concentrated within the 1%.
- “Therefore, moving pay and stock [with votes] from ‘named executives’ to workers would grow the economy,” McRitchie says.
- “Trickle-down hurts the economy; trickle-up builds it.”
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