Proxy advisers disagree over Unisys 'say on pay' vote

Unisys Corp. has a minor fight on its hands over its executive compensation practices.

Like all companies including a “say-on-pay” advisory vote this year, Unisys is asking its shareholders to approve of the way it pays senior executives.

However, one influential proxy advisory firm that’s analyzed the Blue Bell information technology company’s financial performance and total return concludes that shareholders should cast dissenting votes.

If you simply look at the column for total compensation on “summary compensation table” in Unisys latest proxy statement, you’ll see that the 2010 figures are higher than the 2009 figures for all five “named officers,” including Unisys chairman and chief executive officer J. Edward Coleman, who saw his compensation rise to $5.73 million from $3.70 million.

Unisys provides a litany of financial performance achievements to justify the rising portions of equity incentives even as salaries remained flat year over year.

However, proxy advisory firms can play a big role in the outcome of shareholder votes because so many institutional investors rely on their analysis.

When two proxy advisers disagreed on how shareholders should vote on Unisys’ “say-on-pay” question, the computer company was moved to defend its practices in another regulatory filing.

ISS Proxy Advisory Services recommended shareholders vote against the executive pay proposal based on what it sees as a “pay-for-performance disconnect.”

However, Glass Lewis & Co. L.L.C. recommended a vote for the proposal, saying that Unisys “adequately linked pay with performance.”

Naturally, Unisys preferred Glass Lewis’ conclusion to ISS’.

ISS found that the 1-year and 3-year total shareholder returns for Unisys were below the median returns for its peers and the broad Russell 3000 index. The proxy adviser says it pays “close scrutiny” to any company with lagging shareholder returns where more than 50 percent of the increase in compensation for a CEO who has served for at least two fiscal years can be attributed to equity compensation.

Coleman, who was hired to turn around Unisys in October 2008, may fit that criteria, but Unisys says he should not be judged on 3-year total shareholder return. “The time period for assessing corporate performance should coincide with the tenure of the company’s current CEO,” Unisys said in the filing.

Looking at a two-year period beginning in 2009, Unisys’ 205 percent total return is “well above” the 50 percent return for the Russell 3000 and the 89 percent median return for the peer group chosen by ISS, Unisys said.

To be fair, the reasons provided by both ISS and Unisys have merit. ISS applies a consistent yardstick to all companies. Unisys’ point is that the growth in a CEO’s pay should be compared against his or her time at the helm.

Keep an eye on the outcome of the vote at the April 27 annual shareholders meeting. These votes may be non-binding, but corporations need to be wary of ignoring the will of their shareholders.