Calstrs, the second-largest pension fund in the US, has written to 300 companies in which it owns shares to demand they overhaul their executive pay policies and allow shareholders to advise on how top managers are to be paid.
Calstrs, which manages $111bn for California teachers' retirement pensions, said risky behaviour and excessive pay for executives had fuelled the economic crisis. It called for "more responsible executive pay policies".
The move is part of a sustained backlash by shareholders and lawmakers against high executive pay, following heavy corporate losses during the economic downturn. The government bail-out of parts of the financial system has given rise to complaints over the sharp discrepancy in earnings between the average taxpayer and the average Wall Street executive.
The Calstrs move also gives impetus to "say on pay", the policy that would allow all shareholders a non-binding vote on executive pay.
Mary Schapiro, who recently took over as chairman of the Securities and Exchange Commission, has said she favours this policy.
Anne Sheehan, Calstrs' director of corporate governance, said: "This [pay] has been a significant issue for institutional investors this year . . . one of the issues that came up in the financial crisis was the metrics used to determine pay.
"The bonuses were based on very risky behaviour. It raised the question: were executives acting in the long-term interests of the company or were they just jacking up the share price in the short term to get their compensation?"
Calstrs released a model executive compensation policy and said the companies in which it owned shares needed to develop a clear pay policy along these lines, if they did not have one already. The companies also needed to have a compensation committee comprised only of independent directors, and allow shareholders an advisory vote on executive pay.
It said that of the 300 companies it contacted, 34 did not have any provision for allowing shareholders this advisory vote.
Calstrs said its first move would be to step up communications with the companies that did not follow its guidelines.
The pension fund said it would ultimately vote against directors' re-election at those companies that did not follow the compensation guidelines.