Activist Rebukes Mutual Fund Voting in Latest "100 Most Overpaid CEO" Report

February 19, 2016

Moving beyond the typical focus on highly-paid CEOs, activist investor As You Sow continues to target investors, especially mutual funds, which it believes are "rubber stamping" executive pay packages and "failing in their fiduciary duty" to clients, despite the fact that median investor support for say on pay among S&P 500 companies topped 95 percent in 2015 and investors' fiduciary duty to clients is based on overall returns.  In a report released this week entitled "The 100 Most Overpaid CEOs: Are Fund Managers Asleep at the Wheel?" As You Sow reprised its 2015 report on the same subject, focusing not just on CEO pay but on the votes of large shareholders on CEO pay packages.  However, this year's report expanded the number of funds under the microscope, concluding that mutual funds are "far more likely to rubber stamp" than pension funds and citing the high say on pay approval rates of leading investors such as BlackRock and Vanguard as particularly problematic.  The report's author, Rosanna Landis Weaver, confirmed the strong focus on large investors as enablers of "excessive CEO pay," telling the Chicago Tribune that "the real point of this study is we wanted to do something that looked at how mutual funds and pension funds are voting."  The report effectively rejects engagement with companies, which has led to significant changes in certain pay practices in lieu of a negative vote, stating "the votes are the only ways mutual fund clients and pension fund participants can evaluate fund stance on pay."  The report, which also rejects the use of TSR as a primary compensation metric in favor of metrics more directly under the CEO's control, typifies the growing trend among certain smaller and more socially-oriented investors of criticizing larger mainstream investors in the hopes of gaining support for their initiatives.