Institutional investors may not
be as monolithic as believed when it comes to their views on
At least that would seem to be the take-away
conclusion of a study of 20 of the 25 largest U.S. institutional
investors. That survey found that more than half of the respondents oppose
“say on pay” proposals.
Only a quarter of the institutions were in favor of such proposals, in
shareholders make nonbinding votes on whether they support or oppose an
The results come as something of a surprise, considering that
influential shareholder advisory firms
RiskMetrics and Glass Lewis back say on pay. Likewise, the Council of
Institutional Investors, which represents 130 public, labor and corporate
pension funds, approved a policy in March 2007 recommending that all
companies voluntarily adopt say on pay.
But one of the executives at the polled institutions, all of whom chose
to be anonymous in the study, said: “I think [say on pay] is ridiculous. I
don’t get it. If you don’t like [the executive’s pay package], then don’t
invest in the company. Go somewhere else.”
While some of the largest top institutional investors—including
Vanguard, Fidelity Investments and T. Rowe Price—took part in the phone
survey, other large institutions, such as the California Public Employees’
Retirement System, did not.
“There are nuances that often get lost in the day-to-day reporting” of
these issues, said Tim Bartl, general counsel at the
Center on Executive Compensation, which commissioned the study and
helped draft some of the questions. “These findings are more contrary to
[union and pension] statements.”
Maybe. But supporters of say on pay contend that the study is biased
because of the involvement of Bartl’s group, a newly formed association
that represents executives in the compensation debate and is funded by the
Human Resource Policy Association.
Rich Ferlauto, director of corporate governance and pension investment
at the American Federation of State, County and Municipal Employees, said
the center is a “front group” for defending excessive pay.
“Big Business must see the writing on the wall from Congress that there
will be legislation to curb abusive pay practices next year, so they are
out to undermine the growing view that action must be taken,” he said.
The study’s author, Kevin Hallock, a human resources professor at
Cornell University, said the responses seem to indicate institutional
investors are more willing to engage in direct dialogue with companies
over disparate pay than to support
“Most of these guys are not worried about [executive compensation],” he
said. “Although some vocal groups have a more formalized view of it.”
Other survey findings sure to tick off shareholder rights groups: About
three-quarters of the investors had no real concerns about current levels
of executive pay, and less than half said they think compensation
consultants should be independent.
Filed by Nicholas Rummell of
Financial Week, a sister publication of
Workforce Management. To comment, e-mail