A study released by the American Federaration of State, County and Municipal Employees this week found that big fund firms including
Vanguard [see profile]
, BlackRock, ING, and Lord Abbett tend not to vote against management-initiated compensation proposals at companies that are part of their funds' portfolios.
According to the study, Tipping the Balance? Large Mutual Funds' Influence upon Executive Compensation
, Vanguard was the worst ranking fund shop, supporting management pay proposals in 98 percent of the votes examined by AFSCME. BlackRock Inc.
also got poor marks while Fidelity Investments
and American Funds
had more mixed grades. On the flip side, Dimensional Fund Advisors
[see profile], Dreyfus
and Wells Fargo
scored top marks out the 26 fund firms by consistently challenging executives’ pay.
"The influence of mutual funds is huge," stated Lisa Lindsley, director of capital strategies at AFSCME, in a press release. "They could have a much bigger impact if they wanted to."
The Wall Street Journal
Vanguard Tops List of Excessive CEO Pay Enablers
New Report Examines Mutual Fund Proxy Voting Patterns on Executive Compensation
A new report reveals that the largest mutual funds – including Vanguard, BlackRock, ING and Lord Abbett – are the least likely to use proxy votes to align executive pay with performance. On the other hand, the report finds that many smaller funds tend to vote “against’’ management-initiated compensation proposals, and ‘for’ shareholder Say on Pay proposals. Unfortunately, the pay-enabling influence of the larger mutual fund families greatly outweighs the impact of smaller funds. The report specifically finds that the largest mutual fund family, Vanguard, did the least to constrain executive pay in 2010.
“Tipping the Balance? Large Mutual Funds’ Influence upon Executive Compensation,” released today by the American Federation of State, County and Municipal Employees (AFSCME) analyzed 26 of the largest mutual fund families’ voting patterns on compensation proposals in 2010.
“As two of the largest mutual funds, Vanguard and BlackRock have the opportunity to make a real difference in reforming CEO pay, but have chosen to continue the status quo,” said AFSCME International President Gerald W. McEntee. “They owe their clients an explanation for why their assets are being used for CEO pay that does not always match the companies’ performance levels.”
For the first time, the report looks at voting weighted by the assets under management of each fund family, to illustrate their overall ability to influence compensation practices at U.S. corporations. Also, this year the report looked at ten selected votes where there was a consensus of investor concern over pay.
The mutual fund industry’s four greatest “Pay Enablers,” reported as most consistently enabling runaway CEO pay, were Vanguard, BlackRock, ING and Lord Abbett. On average, these four fund groups supported over 90 percent of management proposals, 7 percent of shareholder proposals and 80 percent of directors from whom a large percent of shareholders withheld support due to compensation practices.
Dimensional, Dreyfus, Oppenheimer and Wells Fargo were the fund families most likely to vote to rein in pay. These “Pay Constrainers” voted for shareholder proposals designed to tie executive compensation to long-term performance at an average rate of 88 percent and also voted against all directors sitting on compensation committees at companies with pay problems.
Analyzing fund influence based upon assets under management, the report found that the three largest fund families -- Vanguard, Fidelity and American -- control 59 percent of the assets reviewed for a total over $1.2 trillion. The other 23 fund families controlled 41 percent, or approximately $800 billion.
“Year after year, mutual funds on the whole remained supportive of management positions,” noted Beth Young, one of the report’s authors. “The wide disparity among funds in voting on compensation proposals indicates that some fund families employ a hands-on approach, while others take a decidedly more passive role in voting on executive compensation issues.”
“The additional analysis of fund influence weighted by assets under management invested in securities shows that the potential for the mutual fund sector to reform executive compensation practices remains limited as long as the largest fund families passively vote with management,” stated Jackie Cook, founder of Fund Votes, the provider of data for the report. “Drilling down to individual votes on controversial pay items allows us to identify the worst of the mutual fund pay-enablers.”
“Tipping the Balance? Large Mutual Funds’ Influence upon Executive Compensation” examined the voting records of 26 of the largest mainstream mutual fund families on executive compensation-related proposals at corporate annual meetings from July 1, 2009, to June 30, 2010. The report ranked the fund families according to how they voted in director elections, on management compensation proposals, and on shareholder compensation-related proposals in several different categories including shareholder advisory votes on CEO pay, equity-holding requirements and limiting severance payments.
This is the fifth report produced by AFSCME examining mutual fund proxy voting patterns and CEO pay. AFSCME is the largest union for workers in public service with 1.6 million members nationwide. AFSCME members’ retirement assets are invested by public pension systems, with combined assets totaling more than $1 trillion. The data for this report was provided by Fund Votes, a project that tracks mutual fund proxy voting in the U.S. and Canada. A copy of the report is also available on fundvotes.com.
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