Pension fund giant CalPERS (the largest US public pension fund) announced this week it had implemented an "enhanced voting practice" on executive compensation for 2018, resulting in a jump in negative votes to 43% in 2018 from 18% in 2017 (with a five-year average of 16%). The primary reasons CalPERS stated for its "against" votes was pay and performance misalignment, followed by short performance periods for long-term awards, poor disclosure, short vesting periods for equity grants, discretionary awards and duplicative metrics in short and long-term plans.
The pension fund's 2019 agenda includes a continued focus on board diversity, diversity and inclusion beyond the boardroom, including the diversity of the company's leadership pipeline and employees overall and whether that diversity is reflected on the board, and climate change (Director of Corporate Governance Anne Simpson has been named inaugural chair of the Climate Action 100+ Steering Committee, a group of 289 investors focused on climate change engagement). The fund will also be applying its recently enhanced Governance and Sustainability Principles to proxy voting, campaigns and engagement. These included significant expansion of board responsibilities with regard to preventing and mitigating the risks of sexual harassment, including a new principle on "corporate culture" and new human capital management practice recommendations focusing on preventing harassment, as well as continued focus on executive compensation, consistent with the principles that led to the 2018 increase in say on pay against votes.
Notably, CalPERS voted against Tesla's pay plan due to concerns over the magnitude and dilution of CEO Elon Musk's pay package, and against individual directors at Wells Fargo and Equifax for failures to oversee risk stemming from the 2016 retail banking scandal and 2017 data breach, respectively (Wells Fargo also received an "against" vote on Say on Pay due to "failing to link pay with performance."