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Large Fund Groups Failed to Support Tighter Pay Practices at Banks named in Bailout Plan

Today the US government announced that it would inject $250 billion into the US banking system by buying large stakes in nine banks: Citigroup, JPMorgan Chase, Morgan Stanley, Goldman Sachs Group, Bank of America Corp, Merrill Lynch & Co, Wells Fargo & Co, State Street Corp and Bank of New York Mellon. 

Eight of these nine banks were targeted with ‘Say-on-Pay’ resolutions in the 2008 proxy season.

Executive pay practices at large banks have been placed front and center in the financial crisis: 
• Pay practices are blamed for excessive risks taken by banks. 
• Government conditions on the bail-out plan include executive pay restrictions. 

Government conditions target severance pay and recouping incentive payouts based on ‘inaccurate’ performance measures (earnings, gains, etc.). 

Many shareholder activists argue that tighter pay practices would follow if shareholders could annually cast a vote on an advisory resolution ratify the boards’ compensation reports. 

Who voted down ‘Say on Pay’ at big banks?

Analysis of mutual fund voting data from Fund Votes’ proprietary database of investment fund proxy voting shows that sixteen of the 70 fund groups (including 1700 individual funds) surveyed by Fund Votes failed to support even a single ‘say-on-pay resolution at the eight bail-out banks targeted with this resolution in 2008.  These are:

·         ADVISORS SERIES

·         ALLIANCEBERNSTEIN

·         AMERICAN CENTURY

·         DAVIS

·         DODGE & COX

·         DWS (DWS SCUDDER)

·         FIDELITY*

·         INTEGRITY

·         PUTNAM

·         RIVERSOURCE (AXP)*

·         STATE STREET

·         STEWARD

·         VANGUARD

·         WELLS FARGO

*=Abstained on all votes

Many large fund groups and all of the socially responsible investment groups surveyed supported every such resolution at the eight bail-out banks.  These include:

·         AFSCME

·         AIM

·         AMERITAS

·         ARTISAN

·         BRIDGEWAY

·         CALVERT

·         COVENTRY

·         CREDIT SUISSE

·         DOMINI

·         DREYFUS

·         FIFTH THIRD

·         FRANKLIN TEMPLETON

·         GREEN CENTURY

·         JANUS

·         MELLON

·         MMA PRAXIS

·         NEUBERGER BERMAN

·         PARNASSUS

·         PAX

·         PIONEER

·         RUSSELL (FRANK RUSSELL)

·         SCHRODER

·         SCHWAB

·         SIERRA CLUB

·         TIAA-CREF

·         WALDEN

Data used in this study are available for download from the Fund Votes website.