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Governance

Pension funds getting more involved with CEO pay – report

More pension funds and other large shareholders are voting against CEO pay packages considered excessive, but it will take more involvement to fix the problem, according to a report released Thursday by As You Sow, a non-profit shareholder advocacy organization in Oakland, Calif.

The report — "The 100 Most Overpaid CEOs: Are Fund Managers Asleep at the Wheel?" — is the organization's fifth year of research that focuses on the link between overpaid CEOs of the S&P 500 and shareholder activity holding those companies accountable.

The report found that, worldwide, pension funds with $100 billion or more in assets have more than doubled the number of CEO pay packages they vote against, reaching 40% in 2017. The largest U.S. pension fund, California Public Employees' Retirement System, Sacramento, has increased its votes against S&P 500 CEO pay packages by nearly eightfold.

The report also shows that pension funds give CEO pay packages more scrutiny than mutual fund asset managers, and that European-based investment funds vote against CEO pay packages at a greater rate than those based in the U.S.

Other U.S. asset managers are more likely to vote against CEO pay, when excluding votes from the world's three largest asset managers — BlackRock (BLK), Vanguard and State Street Corp. (STT), which together control 15% or more of U.S. companies. "Their refusal to vote against more than a very, very few CEO pay packages stands out," the report said.

"Private conversations, known as engagements, are insufficient to deal with the systemic problems," said Rosanna Landis Weaver, the organization's program manager of executive compensation, who is encouraged that more pension funds are getting active on the CEO pay issue.

CEO pay continues to increase, growing to an average of $13.6 million in 2017 from $11.5 million in 2013, despite underperformance by the 10 most overpaid CEOs identified in the report. The report found that the 10 firms underperformed the S&P 500 index by 15.6 percentage points in 2017. The most overpaid CEOs were at Fleetcor Technologies, number one at $52 million a year, followed by Oracle, Broadcom, Mondelez International, Wynn Resorts and The Walt Disney Co.

"Quite a lot has changed, but not quite enough," said As You Sow CEO Andrew Behar, who noted on a call with reporters that U.S. pension funds have more asset under management than even the largest asset managers — and should do more.

Former Secretary of Labor and economist Robert Reich said on the call that numerous researchers have found that companies with the highest paid CEOs "really do underperform for shareholders. There is simply no excuse for the level of CEO pay we are now witnessing."

European pension funds are more active on this issue, Mr. Reich said. "U.S. pension funds need to step up."