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 In a recent interview, leaders of the $1.4 trillion Los
Angeles-based investment manager said they worry about the magnitude
of pay for chief executives and question whether corporate boards
are using the right benchmarks to determine compensation.
"There has been this continued escalation where everybody wants to
be in the upper quartile," Alan Berro, senior portfolio manager at
Capital Group, told Reuters.
"Once one guy raises it, they all want those raises, and we are
willing to say no," he said.
Berro's comments are important because Capital Group, which oversees
the big American Funds mutual fund family, is one of the largest
holders of U.S. stocks and is emerging as one of the toughest
critics of corporate compensation.
A measure is its voting record on what are known as "say-on-pay"
resolutions - non-binding measures which let shareholders vote on
whether to approve compensation for top executives.
Last year, big mutual fund providers including BlackRock Inc and
Vanguard Group voted in support of say-on-pay resolutions of S&P 500
companies at least 96 percent of the time, according to research
firm Proxy Insight. Capital Group, however, was less generous in its
support, with its funds supporting the pay 86 percent of the time,
one of the lowest rates among big U.S. fund managers.
Executive pay, which has been a source of controversy for some time,
has drawn more scrutiny amid stagnant U.S. wages for the typical
worker. 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.
Capital Group has rarely spoken about its proxy voting before, but
decided to offer more explanation because of growing interest in the
area, including from financial advisers and institutional investors,
executives said.
Like other asset managers, Capital Group says executive pay should
be linked to performance. But proxy voting principles Capital
recently posted online also have an unusual caveat about "preventing
excess" pay.
In making pay judgments, Berro said, "We always come back to
fairness, and what makes sense in the given circumstances."
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Berro and others at Capital declined to single out individual
companies whose pay packages they view as problematic. A securities
filing shows the $140 billion Growth Fund of America mutual fund
voted "against" pay at two of the fund's 10 largest holdings last
year: Broadcom Corp and Oracle Corp, historically among the
higher-paying technology firms. (Broadcom is now part of Broadcom
Ltd.)
Top holdings of its Capital World Investors unit include Microsoft
Corp, Amazon Inc and Home Depot Inc, according to securities filings
tracked by edgar-online.com. Capital World has a stake of at least
4.5 percent in each of those companies, and other Capital Group
units hold additional shares.
Lately, the firm has been building up a database to track topics
like how companies' executive pay compares to peers, and to what
extent stock grants to executives have diluted outside shareholders,
Berro said.
Berro helps oversee investment selection among a wide range of
blue-chip companies that are now entering the season for annual
meetings.
Not all of Capital Groups' votes will please corporate critics. Its
funds opposed nearly all proposals calling for companies to report
on climate change, for instance. Berro said regulators are
better-positioned than shareholders to oversee such matters.
Capital Group has also gained a reputation in some quarters as being
activist-friendly - for instance, backing some dissident nominees to
DuPont's board last spring.
But Capital Group senior counsel Walt Burkley said his firm does not
recruit activists to target companies for changes. "There is no call
to activism from us," he said.
(Reporting by Ross Kerber; Editing by Lauren Tara LaCapra and Leslie
Adler)
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