Investors with $17 Trillion in Assets Unveil New “Stewardship Group” Focusing on Governance, Compensation
February 4, 2017
This week a group of the governance officers of 16 large U.S. based institutional investors and global asset managers calling itself the Investor Stewardship Group (ICG) unveiled a Framework for U.S. Stewardship and Governance, which focuses on stewardship for investors and governance principles for U.S. listed companies. According to the Group, the six principles included in the framework are not intended to be proscriptive, but “are designed to establish a foundational set of investor expectations about corporate governance practices in U.S. publicly-listed companies.” According to Anne Sheehan, Director of Corporate Governance at CalSTRS, a founding member, “The group brings all types of investors together and enables us to speak with one voice on these fundamental issues.” The group will start officially applying the principles on January 1, 2018.
The executive compensation concepts included in the principles include the linkage of executive incentive plans with a company’s long-term strategy. Specifically, the principles state “As part of their oversight responsibility, the board or its compensation committee should identify short- and long-term performance goals that underpin the company’s long-term strategy. These goals should be incorporated into the management incentive plans and serve as significant drivers of incentive awards. Boards should clearly communicate these drivers to shareholders and demonstrate how they establish a clear link to the company’s long-term strategy and sustainable economic value creation. All extraordinary pay decisions for the named executive officers should be explained to shareholders.” The principles also note that incentive structures should change as major company strategies change. Engagement is expected to figure heavily into the principles, and this week Equilar reported that over 66% of S&P 500 companies reported shareholder engagement in their proxies, triple the level in 2012.
The founders of ICG include BlackRock, State Street Global Advisors, Vanguard, Legal & General Investment Management America, MFS Investment Management, TIAA Investments, T. Rowe Price Associates, ValueAct Capital, Wellington Asset Management, as well as the California State Teachers Retirement System, the Florida State Board of Administration and the Washington State Investment Board.