Dow Chemical shareholders rejected two proposals to have more control over executive compensation, bucking the national trend and their own vote last year.

Only 39% of votes cast supported the so-called "say-on-pay" proposal that would have required shareholders to vote each year on executives' pay packages.

"As long-term investors, we want to see pay for performance, and avoid pay for failure," said John Keenan, who presented the proposal on behalf of several pension funds. "This is not an unrealistic proposal, as it is shareholders who own the company."

A related proposal to require executives to hold onto stock until two years after they left the company received only 25.7% of votes cast. Dow argued that both proposals would limit the company's ability to attract and retain top talent, and that many of its existing compensation guidelines already accomplish the proposals' intent.

Regardless of the vote, Congress may have the last word as a financial regulation bill sponsored by Sen. Chris Dodd (D-Conn.) and heavily touted by President Obama would require shareholders to approve compensation each year.

In recent years, shareholders at Apple, Valero Energy  and dozens of other companies have approved "say-on-pay" proposals.

Advisory Votes

The 2010 vote stands in stark contrast to one at last year's annual meeting, where Dow shareholders narrowly approved a "say-on-pay" proposal. Back then Dow's stock was worth about half what it is today and the company had just closed on its more-than $15 billion acquisition of Rohm & Haas, a deal for which many thought Chief Executive Andrew Liveris paid too much. Despite the 2009 vote, Tuesday's meeting did not include a vote on compensation.

Dow said 2009's vote was only advisory and its board was not required to act. If Tuesday's compensation proposals were passed they also would have been advisory. Companies are not required to act on shareholder proposals - even if they pass - unless the proposals explicitly revise corporate bylaws. In recent years, though, most companies have moved to implement shareholder proposals that pass, even if they're advisory.

"There are a couple companies that are dragging their feet, and Dow Chemical is one of them," said Paul Hodgson, a compensation expert at The Corporate Library. "It does smack of arrogance and ignoring your owners."

Dow representatives said the company has a history of respecting shareholders' wishes, and noted that unlike some other companies, its board of directors is only elected to one-year terms.

Other Proposals

Shareholders also rejected a proposal that would have required Dow to study the effects of dioxin, a carcinogen, on the watershed near corporate headquarters in Midland, Mich. The company says it has been working with the U.S. Environmental Protection Agency and other regulatory bodies to assess any damage. Liveris told shareholders the company has been "publicly transparent."

The proposal sought a detailed, long-form analysis of the effects Dow's operations have had on the Midland region in the past 100 years.

"We don't believe that meeting the law is satisfactory, nor that the cost of cleanup should be a deciding factor," said proposal sponsor Sister Karen Donahue, a member of the Sisters of Mercy.

The Sister of Mercy's proposal received 9.8% of votes cast. Shareholders also approved a change to the company's incorporation statement to cut the number of shares needed to call a meeting from 50% to 25%.