In its third annual report, corporate social responsibility group As You Sow blasted the executive pay packages at S&P 500 companies and called for even greater scrutiny on the executive pay votes of large institutional investors, noting a doubling of large fund groups which have voted against at least 30 percent of compensation packages the group has considered "overpaid" since the report's inception. The annual report, this year titled "The 100 Most Overpaid CEOS: Are Fund Managers Asleep at the Wheel?" closely mirrors last year's report, which is part statistical analysis, part advocacy, and identifies the 100 most "overpaid" CEOs out of the S&P 500, some of which are noted to have been ranked in the top 25 for two or three consecutive years. The report is based on an analysis of 30 variables based on data purchased from HIP Investor, ISS and Glass Lewis, and The Analyst's Accounting Observer, as well as several academics. The data was grouped into four categories for analysis: (1) Pay and performance (incentive/equity pay); (2) company practices contributing to inflationary pay; (3) high executive pay at the expense of long-term sustainability; (4) Consensus concern among external "expert evaluators".
This year's report amplified its criticism of mainstream institutional investors for their approval of the executive compensation at companies the As You Sow report deems as being "overpaid" in what the report characterizes as approval of the "the misallocation of corporate assets." Like last year's report, As You Sow expressly rejects the effectiveness of investor engagement with companies, noting instead that engagement and negative voting should not be "either/or" propositions. However, the report notes that negotiations tend to be kept private and that there is "no way to verify whether these negotiations are having a meaningful effect on pay" even noting that "trends over time suggest [negotiations] are not [having a meaningful effect on pay]. Like last year, the report concludes that say on pay votes are the "only way mutual fund clients and pension funds can evaluate a fund's stance on pay."
While the criticism is notable with specific funds being called out, the report notes that this year the average support for the "overpaid" CEOs identified by As You Sow declined from 82 to 76 percent among the largest fund groups. Further, the report notes that the criticisms seem to be working, stating that Vanguard and Blackrock have increased the hiring of analysts, and State Street Global Advisors and Capital Group will both directly consider CEO pay quantum. The use of public pressure directed against mainstream investors for their support of executive pay packages at companies is beginning to emerge as a more mainstream tactic of social activists, and is an extension of successful pressure being placed on mutual funds to incorporate ESG measures in evaluating both whether to invest in companies and how they vote company proxies.
