Funds’ Stances on Exec Pay Criticized
Mutual fund companies tend to side with corporate management on executive pay issues, often going against the interests of their own shareholders, according to a study being released today.
The study analyzed the voting records of 18 of the nation’s largest mutual fund families on pay-related proposals. It found that most voted for management proposals and against those submitted by other shareholders.
The study was conducted by two groups that have long been critical of high-level corporate compensation: the American Federation of State, County and Municipal Employees, a labor union, and the Corporate Library, a research firm focused on corporate governance.
It identified five fund groups -- Morgan Stanley Funds, AIM Investments, Dreyfus Corp., AllianceBernstein and OppenheimerFunds Inc. -- as “pay enablers,” saying they used their substantial voting strength to foil attempts by other investors to rein in runaway executive pay.
A Morgan Stanley spokesman said the firm “votes all proxies solely based on its fiduciary obligations to its clients.” A Dreyfus representative said the company did not publicly discuss its proxy voting practices.
Representatives of Oppenheimer, AIM and AllianceBernstein said they had not seen the study and could not comment.
The groups that conducted the study credited four fund companies -- American Century Investment Management, TIAA-CREF Asset Management, Federated Investors Inc. and Vanguard Group -- for supporting efforts to limit excessive pay.
The report comes amid heightened criticism of lavish executive pay, which often rises even at companies that post poor or mediocre stock market gains.
In 2005, the average CEO earned $11.8 million in salary, bonuses and long-term stock incentives, according to the Institute for Policy Studies and United for a Fair Economy, a group that advocates “social movements for greater equality.” That was up 14.5% from 2004. For the same period, the pay of non-management workers rose 2.2%, the institute said.
“Corporate America has a CEO salary problem, and it’s time for these mutual funds to take some responsibility for turning off the tap,” Gerald W. McEntee, president of the government employees union, said in a statement. He compared mutual funds to bartenders who “pour drink after drink for a patron with an obvious drinking problem and no way home.”
Surveys of institutional investors conducted over the last year have found that 75% to 90% are critical of executive pay practices. Mutual funds, which hold about one-quarter of invested assets and are required by law to act in the best interest of shareholders, have been required to disclose their voting records since 2004.
The executive pay analysis was based on votes for 2,393 management compensation proposals and 362 pay-related proposals submitted by shareholders. The study’s authors pulled data on the nation’s 25 largest fund companies to dissect their voting records on such proposals but were able to segregate votes on only 18 of them.
The votes were broken down into six categories to determine an overall score. Generally, votes cast in favor of shareholder proposals were considered good, while those cast for management counted against the fund companies. Fund companies also could be downgraded if they favored a management pay proposal at a company that had received a poor grade on the Corporate Library’s executive pay scale.
“This report brings to light the role mutual funds play in enabling excessive compensation and helps investors determine which ones are committed to shareholder value and merit their business,” Nell Minow, editor and founder of the Corporate Library, said in a statement. “The time is now for mutual funds to use their voting power in the interest of shareholders to tie executive pay to actual job performance.”