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 Top money managers such as BlackRock Inc and Vanguard Group oversee
trillions of dollars for individuals, but the firms rarely challenge
CEO pay in their proxy votes on behalf of investors.
That practice may not match well with the views of their clients.
When asked directly, most investors in American fund firms are
critical of CEO pay packages, according to a national Reuters/Ipsos
poll.
Among respondents, 59 percent said chief executives at S&P 500
companies were paid "too much," and 56 percent said mutual fund
firms "should challenge executive pay more often."
The survey was conducted between March 22 and March 31. It included
1,024 people who said they invested with one or more of five top
asset managers and 722 people who said they had at least some
understanding of what a fund manager is. It has a credibility
interval of about 4 percentage points.
For a graphic showing the views of fund firm investors, see: http://tmsnrt.rs/1XJ3gMy
The poll results underscore a growing angst over large-company CEO
pay, which now runs more than 300 times that of U.S. rank-and-file
workers, according to a study by the AFL-CIO, the largest U.S.
federation of unions.
Many CEOs at major companies have pay packages worth $10 million or
more.
One poll participant, Fargo, North Dakota cabdriver Brent Hartz,
said CEO pay is often "ridiculous" and worries that managers of
funds he owns - such as the $50 billion Vanguard Growth Index Fund <VIGRX.O>
- are too cozy with corporate chiefs.
"It's almost like they're in cahoots with each other," Hartz said in
a telephone interview.
Asset managers hold about 30 percent of U.S. corporate stock, giving
them great influence over executive compensation and other corporate
governance issues. Retail investors have about 89 percent of the
nearly $16 trillion held in mutual funds, according to trade group
Investment Company Institute.
All of the five large firms - BlackRock Inc, Vanguard Group,
Fidelity Investments, State Street Corp and T. Rowe Price -
emphasize that executive pay should be linked to company financial
performance. Their voting history, however, shows that they rarely
use their ballots to challenge compensation packages for perceived
underperformance.
Last year, the firms cast their advisory "say on pay" votes in
support of senior executives 96 percent of the time or more at S&P
500 firms, according to research firm Proxy Insight.
That level of support was typical for recent years, as median pay
among S&P 500 CEOs rose to $11.3 million in 2014 from $9.4 million
in 2010, according to pay consultant Farient Advisors.
Big fund firms are facing more questions about their pay votes.
BlackRock faces a shareholder proposal that calls for the world's
largest asset manager to report on how it might bring its voting
practices in line with its stated support of linking pay and
performance. BlackRock calls such a report unnecessary.
BlackRock spokesman Ed Sweeney said the firm believes that talking
privately with company officials is the best way to address pay
issues. Last year, the firm engaged with about 700 U.S. companies
and focused on executive compensation matters in 45 percent of those
meetings, he said.
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Vanguard spokeswoman Linda Wolohan said via email that executive pay
“is a matter on which people have a wide variety of views (as
supported by your survey results).” Pay is just one factor Vanguard
considers in its proxy voting and it often addresses pay issues with
company boards privately, she said.
Fidelity spokesman Charlie Keller said that its funds “are managed
with one overriding goal: To provide the greatest possible return.”
Spokespeople for T. Rowe Price and State Street declined to comment.
Publicly-traded U.S. companies were required to submit the pay of
their top executives for advisory votes by their investors under the
2010 Dodd-Frank financial reform act. With thousands of votes to
cast each year through electronic platforms, the companies each have
their own governance specialists to oversee their voting decisions.
Retired Massachusetts congressman Barney Frank, one of the act’s
creators, has suggested that funds with highly paid executives make
poor overseers of CEO pay.
BlackRock CEO Laurence Fink, for instance, made $25.8 million last
year.
Several leaders of union and state pension funds, which vote against
executive pay more often, said the Reuters/Ipsos poll results
suggest that most investors want funds to take a harder line.
"Ultimately, it has got to be driven by their clients," said Mike
McCauley, a governance officer for the Florida State Board of
Administration, which manages $178 billion.
INEQUALITY DEBATE
Many respondents supported the status quo. Thirty percent said S&P
500 CEOs are paid “about right” and 21 percent said the fund firms
“are taking the correct approach” on pay.
In Byron Center, Michigan, retired Army officer Gabe Hudson worries
that the government might step in to regulate executive pay.
"If you think the CEOs are getting paid too much, you can always
pull your money out of the fund and go to another fund," Hudson said
in an interview.
The poll did not ask about societal issues of income inequity, but
many respondents brought it up in interviews. Some also acknowledged
they don't carefully monitor proxy votes.
Barbara Dixon, a retired school teacher who lives in South Carolina,
said she has not closely followed such votes at the $15 billion
Fidelity Magellan Fund where some of her money is invested.
Still, she wants the fund to play a role controlling in executive
pay. "Someone who is making millions of dollars does not need all
that money," she said.
(Reporting by Ross Kerber; Editing by Carmel Crimmins and Brian
Thevenot)
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