In its fourth annual report, corporate social responsibility activist As You Sow is once again calling for more action from investors against what it calls "exorbitant CEO pay," announcing that the largest fund managers are the most reluctant to vote against high pay packages. In particular, the report notes that despite BlackRock and Vanguard "speaking out" against excessive pay, the two investor giants only voted against only 3% of pay packages in the S&P 500 versus the its calculation of the large mutual fund median "against" level of 12%. As You Sow explicitly rejects the two investors' repeated statements that they prefer to shift corporate governance through dialogue, proclaiming that "votes are the only real way" to determine how serious fund managers are about governance. Interestingly, BlackRock CEO Larry Fink's widely publicized letter to CEOs this year did not mention executive pay.
The report further notes that non-US index funds and pension funds regardless of location are more likely to vote against pay, with several pension funds voting against nearly half of the S&P 500 (aside from the Pennsylvania State Employee Retirement System which voted against none). In addition, although the very largest funds are less likely to vote against pay, the number of large funds that vote against pay has tripled in four years, with 12 funds voting against 30% of pay packages in the S&P 500 in 2017. The As You Sow methodology highlights "overpaid CEOs" by using two rankings: TSR-based regression and the lowest proxy votes for pay packages.
Given the new direction BlackRock and other influential stakeholders are taking toward a broader discussion of societal responsibility and corporate governance, given the influence of the UN Principles for Responsible Investment (see related story below) the As You Sow reports seem somewhat dated with their narrow focus on executive pay to the exclusion of all else. As Larry Fink noted in his CEO letter, "[I have said that] companies have been too focused on quarterly results; similarly, shareholder engagement has been too focused on annual meetings and proxy votes." Although magnitude of pay and the alignment of pay and performance will always be important priorities, the tide seems to be shifting to a more holistic approach to ensuring long-term growth of companies as well as the economy as a whole.