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Mutual funds sign execs’ cheques

US mutual funds voted in favour of management proposals on changes to executive pay policies at a rate of 84%, and ratified executive pay packages at a rate of 77% in 2009, according to new research.

The findings are disclosed in a report, entitled Compensation Complicity: Mutual Fund Proxy Voting and the Overpaid American CEO, by the American Federation of State, County and Municipal Employees (AFSCME), The Corporate Library and Shareowners.org which analysed mutual fund voting patterns on compensation issues in 2009.

The mutual fund industry’s four greatest “Pay Enablers,” reported as most consistently enabling runaway CEO pay, were Barclays, Northern, State Street and Vanguard. According to the authors’ analysis, Barclays was the most enabling, supporting management compensation proposals 96% of the time, while its support for shareholder proposals was under 2%. The merger of Barclays and BlackRock last year created a mutual fund family with unprecedented power to constrain runaway pay; however, the combined voting record of the merged firms ranks as near the most “Pay Enabling,” along with mutual fund giant Vanguard.

Schwab, BNY Mellon, Dreyfus, Fifth Third and Legg Mason were the funds most likely to vote to rein in pay. These “Pay Constrainers” voted for shareholder proposals designed to tie executive compensation to long-term performance at an average rate of 91%. These funds also voted against members of board compensation committees at companies with pay problems at a higher rate than other funds.

The average level of mutual fund support for management proposals on compensation issues was 84%, unchanged from 2008. The average level of support for the categories of compensation-related shareholder proposals was 56%, a significant increase from the 40% in 2008. Mutual funds were less willing to vote against directors over compensation issues, increasing the average level of support for certain directors from 48% in 2008 to 50% in 2009. Mutual funds supported management-sponsored Say on Pay proposals at a rate of 77%.

“Given the bailout and dismal performance of many companies, investors in mutual funds should be outraged that their assets are being used to ratify CEO pay that in too many cases was undeserved and unearned,” said AFSCME Pres. Gerald W. McEntee. “Mutual funds hold over 25 percent of the market capitalisation of all U.S. companies, and the ten largest fund families manage more than half of all mutual fund assets. These 800 pound gorillas need to start throwing their weight around to demand that CEOs get paid only when they perform.”

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