Southwest Airlines | Improve clawback policy for unearned executive pay at Southwest Airlines

Status
18.54% votes in favour
AGM date
Previous AGM date
Proposal number
5
Resolution details
Company ticker
LUV
Lead filer
Individual
Resolution ask
Adopt or amend a policy
ESG theme
  • Governance
ESG sub-theme
  • Remuneration or pay
Type of vote
Shareholder proposal
Filer type
Shareholder
Company sector
Industrials
Company HQ country
United States
Resolved clause
RESOLVED: Shareholders ask the Board of Directors to amend the Company Policy on recoupment of incentive pay to apply to the each Named Executive Officer and to state that conduct or negligence—not merely misconduct—shall trigger mandatory application of that policy. Also the Board shall report to shareholders in each annual meeting proxy the results of any deliberations regarding the policy, including the Board’s reasons for not applying the policy after specific deliberations conclude, about whether or not to cancel or seek recoupment of unearned compensation paid, granted or awarded to NEOs under this policy. There shall at least be the full web address of the complete Clawback Policy in each annual meeting proxy.
Supporting statement
SUPPORTING STATEMENT: These amendments should operate prospectively, be in plain English and be implemented so as not to violate any contract, compensation plan, law or regulation. This includes that at the time of the amendment that no section of such revised policy be adopted that would act against this proposal and make it more difficult to clawback unearned NEO pay and that no section of such revised policy shall further restrict the current policy.

The Southwest Airlines Clawback Policy, described by only 60 words in the 2023 Southwest Airlines annual meeting proxy, seems to be completely discretional so that the Board can decide to give an executive a free ride. Plus there is no web address in the proxy for the complete Clawback Policy. And the Clawback Policy seems to mostly restrict the Board to situations that involve executive misconduct.

Because the Southwest Airlines Clawback clawback policy merely gives the Board the option of clawback and does not require disclosure to shareholders of its being put to use in actual cases, the current policy is too narrow, too vague, and may not address situations where an executive negligently fails to exercise oversight responsibilities that result in significant financial or reputational damage to Southwest Airlines. It should.

A 2022 rule from the Securities and Exchange Commission requires a clawback of erroneously awarded incentive pay—even with no misconduct - if a company restates its financial statements owing to material errors.

Wells Fargo offers a prime example of why Southwest Airlines needs a stronger policy. After 2016 Congressional hearings, Wells Fargo agreed to pay $185 million to resolve claims of fraudulent sales practices. Wells Fargo’s board then moved to claw back $136 million from 2 top executives. Wells Fargo unfortunately concluded that the CEO had only turned a blind eye to the practice of opening fraudulent accounts.

Proposal submitted by Mr. Kenneth Steiner

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