In a rare step, Staples Inc. shareholders have voted their disapproval of a new executive pay package for top managers of the struggling retailer. They also approved a recommendation to require the company to install an independent board chairman.
Both votes are nonbinding and do not require the company to act. But they signal growing unrest among stockholders of the Framingham-based office supply chain.
The investors cast a 54 percent majority vote against the compensation plan at an annual meeting Monday in Palo Alto, Calif.
“It’s a striking result,” said Gary Hewitt, the director of research at GMI Ratings, a corporate governance research firm. “It represents dissatisfaction with the performance and overall trajectory of the company.”
The vote in favor of an independent chairman was effectively a recommendation to split the roles of chief executive and chairman at Staples. CEO Ronald Sargent added the title of chairman in 2005. Last year, a similar proposal was voted down by the shareholders.
Staples did not say if it intended to act on the shareholder decisions.
“We take shareholder input very seriously,” said Kirk Saville, a company spokesman. “The board of directors will take these results into consideration as it continues to work to build value for all shareholders.”
A shareholder vote against a performance-based pay package is very unusual. Of 1,696 similar pay packages voted on this year, only 34 companies received less than half of shareholder votes, according to ISS Corporate Services Inc., a proxy advisory firm.
The votes demonstrate a sea change among Staples investors. Last year, an executive compensation package was approved by shareholders by a 98 percent majority.
Executive pay at Staples drew particular attention this year due to a one-time cash reward included in a wider restructuring of the compensation plan. Executives failed to qualify for annual cash bonuses last year because the company performed so poorly. But in March, the board approved relatively small, one-time bonuses for its top four executives anyway.
Sargent received a bonus of $299,810, bumping up his total compensation to $10.8 million last year.
The bonuses were awarded for a year in which revenue at Staples dropped 5.2 percent and earnings declined 17 percent, in comparison to 2012.
And the business declines have not stopped. In the first quarter of 2014, profit fell 43 percent and revenue decreased 3 percent, compared to the same period last year.
“Shareholders have a reason to be getting impatient here,” said John Core, a professor at the MIT Sloan School of Management with an emphasis in executive compensation. “Given their underperformance, you really would have thought [Sargent’s] pay would have gone down. Then these special bonuses don’t look good.”
Institutional Shareholder Services had recommended that shareholders vote against the compensation plan. Two other proxy firms, Glass, Lewis & Co. and Egan-Jones Proxy Services, advised them to approve it.
Both Glass Lewis and ISS advised shareholders to vote in favor an independent board chairman.
Glass Lewis said an independent chairman can more appropriately set a pro-shareholder agenda. The firm also said research suggests that combining the positions “may hinder a board’s decision to dismiss an ineffective CEO.”
Hewitt said that shareholders are probably tired of the company moving in the wrong direction and want to rock the boat. “It indicates some lack of confidence either in Sargent or in the company,” he said.