Executive Compensation - Say on Pay

2010 – Raytheon Company

 

     

RESOLVED, that stockholders of Raytheon Company (“Raytheon”) request the board of directors to adopt a policy that provides stockholders the opportunity at each annual stockholder meeting to vote on an advisory resolution, proposed by management, to ratify the compensation of the named executive officers (“NEOs”) set forth in the proxy statement’s Summary Compensation Table (the “SCT”) and the accompanying narrative disclosure of material factors provided to understand the SCT (but not the Compensation Discussion and Analysis).  The proposal submitted to stockholders should make clear that the vote is non-binding and would not affect any compensation paid or awarded to any NEO.

     

Supporting Statement: In our view, senior executive compensation at Raytheon has not always been structured in ways that best serve stockholders’ interests.  For example, in 2008 Chairman and CEO William Swanson’s total compensation of $24,392,698 was more than the combined total compensation of the next four highest paid NEOs.  We believe that the pay equity gap among our executives is cause for concern. A Harvard study shows that greater executive pay inequity is associated with lower firm value and greater CEO entrenchment. (Lucian Bebchuk et al., “Pay Distribution in the Top Executive Team” (February 2007)) 

     

We believe that existing U.S. corporate governance arrangements, including SEC rules and stock exchange listing standards, do not provide stockholders with sufficient mechanisms for providing input to boards on senior executive compensation.  In contrast to U.S. practice, in the United Kingdom, public companies allow stockholders to cast an advisory vote on the “directors’ remuneration report,” which discloses executive compensation.  Such a vote isn’t binding, but gives stockholders a clear voice that could help shape senior executive compensation. 

 

Currently U.S. stock exchange listing standards  require stockholder approval of equity-based compensation plans; those plans, however, set general parameters and accord the compensation committee substantial discretion in making awards and establishing performance thresholds for a particular year.  Stockholders do not have any mechanism for providing ongoing feedback on the application of those general standards to individual pay packages.

 

Similarly, performance criteria submitted for stockholder approval to allow a company to deduct compensation in excess of $1 million are broad and do not constrain compensation committees in setting performance targets for particular senior executives.  Withholding votes from compensation committee members who are standing for reelection is a blunt and insufficient instrument for registering dissatisfaction with the way in which the committee has administered compensation plans and policies in the previous year.

     

Accordingly, we urge our board to allow stockholders to express their opinion about senior executive compensation by establishing an annual referendum process.  The results of such a vote could provide Raytheon with useful information about stockholders’ views on the company’s senior executive compensation, as reported each year, and would facilitate constructive dialogue between stockholders and the board.

     

We urge stockholders to vote for this proposal.