For Immediate Release
Tuesday, June 05, 2007
AllianceBernstein, Barclays, AIM Faulted for Enabling Excessive Executive Pay
New report “Failed Fiduciaries” examines mutual fund proxy voting patterns on CEO pay
Washington, D.C. —AllianceBernstein, Barclays Global and AIM are named as “Pay Enablers,” who share responsibility for excessive executive pay, according to a new report examining 29 mutual fund families and their proxy voting patterns on CEO pay. The report, “Failed Fiduciaries: Mutual Fund Proxy Voting on CEO Compensation,” was released today by the American Federation of State, County and Municipal Employees (AFSCME), The Corporate Library and the Shareowner Education Group. The report identifies the mutual funds in 2006 that generally support management compensation proposals to increase pay and vote against shareholder proposals seeking to align pay with performance.
“These mutual funds are failing to protect the assets of their clients,” says Gerald W. McEntee, president of AFSCME. “CEOs should be paid for performance. Investors in these mutual funds should be outraged that their assets are being used to prop up undeserved CEO pay.”
“It concerns us when well known mutual funds abdicate their role as watchdogs for their clients’ money,” says McEntee. “This report shines a bright light on those mutual funds that are complicit in excessive payouts to CEOs.”
A December 2005 survey by consultant Winston Wyatt revealed that nine in 10 institutional investors believe the current executive compensation system overpays executives. Yet, the new report found that mutual fund proxy voting is largely not being utilized to curb pay abuse. The report discloses that the average level of support for management proposals on compensation issues in 2006 was 75.8%, up slightly from 75.6% in 2005. The average support for pay-related shareholder proposals included in the study was 46.5%. In 2006, the median CEO compensation among Standard & Poor’s companies rose by 23.8% over 2005 levels and median compensation at 1,048 companies tracked by The Corporate Library increased by 9.3%.
AllianceBernstein was the lowest ranked fund manager in the study - since it supported 94.8% of all management compensation proposals and only 31.1% of selected shareholder proposals. Barclays Global followed close behind, supporting shareholder proposals only 33.8% of the time while throwing its support to 94.7% of management proposals. AIM, the third-lowest-ranked fund family, supported 35.7% of shareholder proposals and 91.1% of management proposals.
TIAA-CREF, T. Rowe Price and Columbia came out at the top of the ratings as the funds most likely to vote to constrain pay. In contrast to the enablers, these funds voted for shareholder proposals at 72.6%, 77.1% and 70.8% levels, respectively.
Five fund families – Fidelity, Putnam, Legg Mason, Morgan Stanley and T. Rowe Price – decreased their management proposal support levels by more than 5% from 2005 to 2006. Only one firm, Merrill Lynch, increased its support by more than 5% during that period. Fidelity is cited in the report for not supporting a single shareholder proposal on compensation-related issues in the categories selected for the study. However, the firm supported only 52.9% of management proposals.
“These voting patterns occurred despite the stock option backdating scandal last year and the growing consensus that CEO pay needs to be more tightly linked to company performance” says study author Beth Young. Notes Young, “The wide variation among funds’ voting records also dispels the notion, advanced during the debate over mutual fund proxy voting disclosure, that funds would vote in lockstep according to proxy advisors’ recommendations if disclosure was required.”
The report examined the voting records of 29 of the largest mutual fund families on executive compensation-related proposals at corporate annual meetings from July 1, 2005, to June 30, 2006. The report used data that the mutual funds are required to disclose by the Securities and Exchange Commission in their N-PX filing. The study ranked the fund families according to how they voted on 1,590 pay-related management proposals and 75 shareholder compensation-related proposals in nine categories, such as performance-based equity compensation, shareholder advisory votes on CEO pay and caps on severance payments.
This is the second year the report has been produced by The Corporate Library and AFSCME. AFSCME is the largest union in the AFL-CIO, representing 1.4 million public service workers. AFSCME members have their retirement assets invested by public pension systems with combined assets totaling over $1 trillion. The Corporate Library is an independent research firm that compiles research, studies and critical thinking about the nature of the modern global corporation. This year the report is also authored by the Shareowner Education Group, a newly formed nonprofit organization dedicated to educating and promoting patient, long-term investment strategies for retail investors and the financial institutions that serve them.
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The “Say on Pay” Mutual Fund Proxy Voting Hall of Shame (PDF 15k)
Learn how mutual funds voted on the four Say on Pay votes surveyed in 2006.
