CEO pay continued to increase in 2021, but so did shareholder opposition to excessive compensation, according to a report issued Thursday by As You Sow.
The seventh annual 100 Most Overpaid CEOs report from the investor advocacy group focuses on how shareholders hold companies accountable for excessive compensation, with more companies receiving less support for CEO pay packages. "Shares held by U.S. public pension funds and European financial managers have made their opposition to excessive U.S. CEO pay clear," said the report, citing data from Insightia that showed financial managers controlling more than $2 trillion increased opposition to CEO pay by more than 10%.
"We've been pleased to see increased opposition to excessive CEO pay from many funds," said the report's author, Rosanna Landis Weaver, As you Sow's executive compensation program manager.
This year's report also "discovered that dual-class stock and insider ownership can sometimes mask the true extent of shareholder opposition. And perhaps not surprisingly, some companies that are most insulated from the will of all shareholders have some of the most overpaid CEOs," Ms. Weaver said.
For pension funds and other asset owners, some of the increased opposition stemmed from internal changes. The report cites the example of the $120.48 billion New York State Teachers' Retirement System, Albany, changing its policy to include D grades as well as F's received by companies under the Glass Lewis grading system. That increased its rate of opposition to CEO pay at S&P 500 companies to 32.3% in 2020 from 11.3% in 2019.
Many financial managers, particularly the largest U.S. firms, continued to vote in favor of many pay packages of excessively paid CEOs, the report found, with a 6.2% median level of opposition to CEO pay at S&P 500 companies over the previous proxy year.
In 2020, proxy advisory firm ISS reported that the median vote support level decreased to 95%, the lowest level recorded since 2011 when mandatory say on pay votes began.
In the year that was defined by the COVID-19 pandemic, worker wages represented a lower share of the U.S. economy than almost any time since the Federal Reserve began collecting the data in the 1940s, the report said.
In the 2021 proxy season, "investors are focused on whether COVID-based adjustments are appropriate to CEO pay packages. Investors and advisory firms have made it clear that they will evaluate pay packages in the context of how shareholders and employees have fared during the pandemic," it said.
The performance gap between repeat offenders and companies that have never been on the list represents $223 billion in lost shareholder value. The nine S&P 500 companies repeatedly making the list had an annualized total shareholder return (dividends plus stock appreciation) of 1.95%, compared 5.6% for companies not on the list, As You Sow found.