European Investors Oppose CEO Pay More Than Vanguard, BlackRock

(Bloomberg) -- Large asset managers oppose executive compensation plans at a higher rate than ever before, and European firms tend to reject CEO pay more often than their U.S. peers.

Allianz Global Investors last year voted against about 75 percent of compensation packages awarded to executive teams of S&P 500 firms, and Dutch pension fund PGGM opposed 98 percent of the time, according to a report issued Thursday by As You Sow, a shareholder advocacy group. Several major U.S. asset managers rejected only a fraction of those pay packages, the report said.

Growing income inequality in the U.S. and elsewhere has fueled populist sentiments and led to continued scrutiny of how corporate wealth is divided between executives and rank-and-file workers. Advisory shareholder votes on executive compensation are one of few direct tools for investors to publicly voice discontent. While not binding, poor results can embarrass directors and draw the attention of activists.

“There’s much more room, particularly in the United States, for fund managers to play an active role on CEO pay,” said Robert Reich, secretary of labor under President Bill Clinton, who has written several books on economic redistribution and income inequality. “Workers are getting paid peanuts and top executives are running off with almost everything. Income inequality is not just a societal problem, it’s also a problem inside firms, and directors ought to be concerned.”

Imprecise Science

The three dominant U.S. asset managers -- BlackRock Inc., Vanguard Group and State Street Corp. -- each approved at least 93 percent of S&P 500 compensation plans, the report said. Others, like the California Public Employees’ Retirement System and the Florida State Board of Administration, cast votes against roughly half of the programs.

Judging whether or not a CEO is overpaid is an imprecise science. Stock return is affected by many factors, earnings can be smoothed with buybacks or clever accounting, and companies can use acquisitions to mask poor growth in its core business.

As You Sow based its ranking on executive pay relative to stock returns and investor votes on those packages, and also included a list of the 100 CEOs it said were the U.S.’s most overpaid. Topping the list were Ron Clarke of FleetCor Technologies Inc., Mark Hurd of Oracle Corp. and Hock Tan of Broadcom Inc.

FleetCor and Oracle, which both received less than 50 percent investor support for their executive pay plans last year, have revamped them in response to investor feedback. Broadcom in 2017 gave Tan a $98 million equity grant tied to stock return targets over several years. Last year, Tan got $5 million.

The Bloomberg Pay Index, which lists the 100 top-paid executives at publicly traded companies in the U.S., contrasts compensation with a company’s economic profit, or after-tax operating profit minus capital costs, which shows whether management’s decisions produce returns in excess of the cost of debt and equity.

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