Sloan: Aflac Ducks a Punch Over Executive Pay

When the public face of your company is a duck, you can't afford to foul up your reputation. (Yes, you can groan now.) Take Aflac Insurance, best known for its ubiquitous quacking commercials. Something funny happened at the company's recent shareholder meeting: nothing. That's because unlike any other U.S. company with publicly traded stock, Aflac has been smart enough to voluntarily offer its shareholders a "say on pay."

Giving in to social-activist shareholders, as Aflac did, doesn't make you popular among the CEO set. But boy, was it the smart thing to do. Compare Aflac's enhanced shareholder-friendly image with the embarrassment suffered by Verizon, Blockbuster and Merck, all of which—like Aflac—advertise heavily to the public. A majority of Verizon's and Blockbuster's holders approved nonbinding say-on-pay proposals despite management and board opposition, as did 49.2 percent of Merck's. The whole question has been a distraction to dozens of firms—but not Aflac.

In any event, resistance seems futile. Proposals mandating a nonbinding advisory shareholder say on exec pay are moving through Congress as quickly as boards approve suggestions to raise directors' compensation. So even if shareholders don't force companies to adopt say on pay, they'll likely have to adopt it anyway.

Normally, this is the point at which I'd crunch a few numbers and analyze some of the more obscene pay packages, which are disclosed in full detail this year for the first time because of new SEC rules. Instead, I'd like to depart from form and offer you a numbers-lite account of how Aflac and activist shareholders did the right thing by ducking confrontation.

But first, a brief flashback. The say-on-pay campaign kicked off a year ago when Richard Ferlauto, director of pension-investment policy at the American Federation of State, County and Municipal Employees, wore a chicken suit outside Home Depot's 2006 annual meeting. He clucked that Home Depot's board was afraid to let shareholders vote on the since-departed Bob Nardelli's legendarily obscene pay package. "We started with a chicken and ended with a duck," Ferlauto says.

Last fall, Ferlauto assembled unions, "socially responsible" investors and other allies to ask about 60 companies to adopt a nonbinding say-on-pay vote for top execs' compensation packages. It sure sounds like Mom and apple pie: who could oppose something that seems so reasonable? But, of course, companies did.

Aflac ended up on the list because chairman Dan Amos knocks down a healthy pay package—and because the Aflac duck, quacking on behalf of the company since 2000, has given it huge name recognition.

Dawn Wolfe, a social-research analyst at Boston Common Asset Management, which holds Aflac in its portfolio, sent a say-on-pay proposal for inclusion on Aflac's proxy statement. She expected months of opposition, she says, but the company quickly saw the light and compromised.

What happened? "We were shocked" when the proposal was filed, Aflac's Amos told me. "Our initial reaction was 'What have we done wrong?' " Amos says he called some of Aflac's biggest shareholders, who told him that say on pay seemed reasonable. "I realized it was something people wanted," Amos said, "so I went to the board and said we ought to do it. And so we did."

Aflac was oddly vulnerable to Boston Common—or any would-be dissident shareholder, for that matter—because despite being a big company ($25 billion in stock-market value), it prides itself on holding upbeat, family-type annual meetings. Amos told me that the company, founded in 1955 by his father and two uncles who went door to door seeking investors, has never had a dissident proposal on its proxy statement, and didn't want one this year. That gave Boston Common leverage that it didn't realize it had.

"They were very open—it was very refreshing," Wolfe says. When the company agreed to a say-on-pay vote, starting in 2009, Wolfe withdrew Boston Common's proposal, letting Aflac send shareholders an opposition-free proxy statement. Sure, 2009 is a long time from now. But with Amos himself holding a 10 percent voting stake in Aflac and other family members having holdings, there's no way Boston Common would have prevailed. So 2009 is a smart compromise. Boston Common gets a victory; Aflac buys time.

Finally, to a crucial question: will Aflac's spokesfowl pick a side in the 2009 pay vote? "The duck's the cheapest guy we've got working for us—and the most valuable," Amos said. "He'll just say, 'Vote yes'." And with that wise-quack, I bid you adieu.