Vanguard, BlackRock Seen Seldom Challenging CEO Pay Plans

  • Fund giants vote with boards 97% of the time, report says
  • Who's protecting investors, asks shareholder advocacy group

When it comes to CEO pay decisions, Vanguard Group and BlackRock Inc. almost always side with corporate boards.

The mutual fund giants, which together manage $7.6 trillion, voted with directors on executive pay plans 97 percent of the time last year, according to a report issued Wednesday by shareholder advocacy group As You Sow. The data is based on a tally of 100 companies whose chief executives received $9.7 million or more in annual pay.

“The votes mutual funds cast are the public signal of their position on CEO pay," Rosanna Landis Weaver, the author of the report, said in a telephone interview. “I do not believe –- particularly given the current discourse on income inequality -– that it truly represents the beliefs or interests of individuals’ whose 401(k) assets are being voted."

Mutual funds affiliated with Fidelity Investments approved board-backed pay 79 percent of the time, As You Sow said. T. Rowe Price Group Inc. funds supported 92 percent of plans. The rates for Franklin Templeton and JPMorgan Chase & Co. are 70 percent and 79 percent, respectively.

Dimensional Fund Advisors backed only 54 percent of pay proposals, Oakland, California-based As You Sow said. Its report is based on data from Fund Votes, a project run by CookESG Research that compiles proxy tallies for about 110 fund families.

Ed Sweeney, a spokesman for BlackRock, said the firm follows proxy-voting guidelines that encourage companies to tie pay to strategy and increasing shareholder value. Arianna Stefanoni Sherlock, a spokeswoman for Vanguard, declined to comment.

Golden Parachutes

"We take corporate governance very seriously," said Joseph Chi, co-head of portfolio management at Dimensional, which had $388 billion in assets as of Dec 31. "We continue to press on this issue because it is important to shareholders."

Dimensional’s corporate governance committee comprises the firm’s most senior officers and directors, including co-founder David Booth and director Eugene Fama, Chi said. It never approves of plans that allow single-trigger payouts to executives -- golden parachutes without termination -- in the event of a merger or acquisition.

TIAA-CREF, the provider of insurance and retirement products for teachers, supported 96 percent of the pay plans, nearly as many as Vanguard and BlackRock. It had more than $800 billion in assets under management at the end of September.

‘Say on Pay’

“We believe our approach to executive compensation –- evaluating companies on a case-by-case basis and conducting direct, ongoing engagement – is the most effective way to support practices that reward sustainable shareholder value,” Bess Joffe, TIAA-CREF’s head of stewardship and corporate governance, said in an e-mail.

Pension funds increased their opposition to pay plans in 2015, according to the report. The California Public Employees’ Retirement System opposed 47 percent of pay plans, As You Sow said.

Shareholder “say on pay” was mandated in 2010 by the Dodd-Frank financial reform law, which calls for such votes at least every three years. Ninety percent of companies in the Standard & Poor’s 500 Index hold them annually, according to data compiled by Bloomberg. Failing votes are rare. Support for pay packages in the S&P 500 index averaged 92 percent in each company’s most recent vote, Bloomberg data show. Only three companies in the index had a majority of shareholders disapprove.

“These companies will often say they are engaging with boards and that is why they’re not voting against plans," Weaver said of mutual fund managers. “The problem is that so-called engagement takes place behind closed doors and is hidden from public view.”

BlackRock CEO Larry Fink was awarded $26.3 million in 2014, making him the 118th-highest-compensated executive on the Bloomberg Pay Index. At least 85 percent of BlackRock’s investors have supported its pay practices every time it has held votes on the matter. Vanguard isn’t publicly traded and doesn’t disclose CEO Bill McNabb’s pay.

As You Sow is a nonprofit that promotes corporate social responsibility through shareholder advocacy.

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