CalPERS Tightens Rules on Corporate Pay Plans

The California Public Employees’ Retirement System, the largest U.S. pension fund, voted Monday to tighten standards it will use in deciding how to cast proxy ballots on the issue of executive compensation.

The CalPERS Investment Committee voted 9 to 0 to adopt the new set of policies. Under the new rules, CalPERS would cast proxy ballots in favor of executive compensation plans only when they’re tied to the financial performance of the company and when stock options for executives take at least four years to vest.

The fund also said it would expect to oppose a plan if more than 5% of stock option grants go to the company’s top five executives in any one year.

“As a huge institutional investor, we have a significant stake in making sure that the performance of these companies is tied to their executives’ compensation,” CalPERS Chairman Sean Harrigan said. The fund has $130 billion in assets and owns shares of thousands of companies.

The new policy also rejects compensation plans that don’t prohibit the repricing of options granted to executives without shareholder approval, and plans that offer so-called evergreen provisions that automatically increase the options available to an executive yearly.