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Shareholder activism and public pressure around executive compensation may be having an effect on how mutual funds vote on pay packages at companies they invest in.
Mutual fund giants such as BlackRock Inc. and Vanguard Group have been called out by shareholder advocates in the past for “rubber-stamping” pay plans, but research from As You Sow shows they are voting against compensation deemed excessive a bit more often.
The shareholder advocacy group came up with a list of 100 chief executive officers in the S&P 500 whose pay it considered too high based on financial performance and other factors. It then looked at voting records across 25 mutual fund families and found that average support for “overpaid” CEOs has declined somewhat, from 82 percent to 76 percent, over the past year.
“Part of what has happened is there’s become more awareness of how income inequality undermines society and how the short-termism that often inflates these packages undermines all of our holdings,” As You Sow’s Rosanna Landis Weaver, who authored the report, told Bloomberg BNA. “So I think some of those realizations are entering the mainstream.”
Shareholders have cast advisory votes on pay packages since 2011 as part of a Dodd-Frank Act provision meant to help combat compensation packages that are too large or encourage too much risk-taking.
One fund group, Dimensional Fund Advisors, voted against a slight majority of As You Sow’s flagged pay packages for the first time. Others, including Vanguard, saw more modest changes. It went from voting against only three of the packages last year to voting against nine this year.
Executive pay that is out of line with a company’s performance may be a drag on shareholder return. The 100 companies that the report identified as having the most “overpaid” CEOs in the S&P 500 underperformed the index by 2.9 percent, according to the report.
BlackRock, which voted against just 7 percent of the pay packages on As You Sow’s list, and State Street, which voted against close to 17 percent of them, have faced resolutions from shareholders asking about their pay votes in the past. This year, a similar proposal has been filed at T. Rowe Price and another one at Franklin Templeton Investments is set to go to a vote at its annual meeting Feb. 15.
“They control large numbers of shares in the companies that they invest in and they are letting the CEOs of those companies take excessive amounts of money for themselves, which harms all the shareholders,” Stephen Silberstein, a former software executive turned philanthropist who sponsored the resolutions at BlackRock and Franklin Templeton, told Bloomberg BNA.
T. Rowe Price told As You Sow in a January meeting that it would be more transparent about how it evaluates pay proposals. State Street Global Advisors, which made the same pledge last year, said it has typically focused on “enhancing the pay-for-performance element of C-Suite compensation.”
“However, with overall CEO pay remaining largely stable or increasing despite performance challenges, the variability in pay and its link to performance is not apparent to investors,” State Street said in guidelines issued last year.
BlackRock didn’t return a request for comment. Franklin declined to comment beyond its board’s recommendation to vote against Silberstein’s proposal.
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