Funds Urged to Monitor Exec Pay

California Treasurer Phil Angelides is urging the state’s two biggest public pension systems to pay more attention to executive pay.

Angelides on Wednesday sent letters to the investment committees of the California Public Employees’ Retirement System and the California State Teachers’ Retirement System, asking them to use their muscle as major shareholders to vote against any company compensation plan that would give managers dramatically more stock than lower-level employees.

“This is a pivotal moment in executive compensation,” Angelides said. “The question is whether we can put standards in the marketplace that produce a better result.”

CalPERS and CalSTRS, which control roughly $220 billion in assets, have suffered greatly over the last three years as corporate scandals and the three-year bear market have eroded the value of their stock market investments, said Angelides, who serves as a trustee of both retirement systems.

Toughening the pension funds’ already strict proxy voting guidelines would help determine whether CalPERS and CalSTRS go along with executive pay packages proposed by the managements of companies the funds invest in. CalPERS’ stance on executive pay and other corporate governance issues is widely followed by other institutional and individual shareholders.

The new standards proposed by Angelides would encourage the pension plans to only support stock proposals that restrict the percentage given to managers and directors to less than 25% of the total given to all employees and require that the top five managers get less than 5% of the total.

The plan was met with mixed reactions Wednesday.

Craig Barrett, chief executive of Intel Corp., said he liked Angelides’ approach -- which was based in part on Intel’s stock compensation guidelines -- because he thought it will would take some of the wind out of the sails of those proposing that stock options be listed as an expense on company balance sheets.

Shareholder activist Nell Minow said she would like to add provisions that would encourage the pension funds to push for expensing stock options too.

Compensation consultant Robin Ferracone of Mercer Human Resource Consulting said she thought the plan was “a terrible idea” because it would limit the flexibility of compensation plans by preventing companies from showering all their stock-based rewards on the people at the top.