A new Research Brief from Fund Votes finds that 8 out of the 9 financial firms named in the US government bailout plan had been targeted by shareholder activists with a ‘say-on-pay’ resolution in 2008. A number of major mutual fund families failed to support those initiatives and actually voted overwhelmingly against increasing oversight on executive compensation.
121,000 votes by 47 mainstream fund groups and six socially responsible investment (SRI) groups show mutual funds more likely to support shareholders in their quest to rein in executive compensation in 2008 compared with 2004 – the first year that votes were disclosed. SRI funds lead the charge against runaway senior executive compensation at large US corporations.
Other key findings:
· Mutual fund support for shareholder-sponsored compensation resolutions is increasing, led by SRI mutual funds. Mainstream fund groups cast an average of 41% of votes (including votes ‘for’, ‘against’, and ‘abstentions’) in support of shareholder-sponsored compensation resolutions in 2008, up from 20% in 2004.
· Mainstream funds cast the majority of their votes in support of five of the 17 categories of shareholder sponsored compensation resolutions. SRI funds voted overwhelmingly in support of compensation resolutions.
· ‘Say-on-Pay’ resolutions received a majority of mainstream mutual fund votes in support in 2007 and 2008, while the number of resolutions voted on in this category soared to 79 and average general shareholder votes inched up to just below 40%.
· The American Federation of State, County and Municipal Employees (AFSCME) promoted new types of resolutions in 2008: one type requests boards not to allow tax gross-up payments to senior management, and another calls for three key principles to be incorporated into contracts with senior management. Both categories did well in their first year, with the former earning 58 percent average support from mainstream fund groups surveyed.
· Resolutions addressing severance pay continue to attract the highest support from mainstream fund groups: 70% average support from fund groups in 2008. This is the only category of shareholder resolution earning an overall majority support from general shareholder bodies: 55 percent of votes cast at AGMs in the 2008 proxy season (including abstentions in the denominator) voted ‘for’ the 7 resolutions in this category.
· Resolutions asking the board to recoup management bonuses based on erroneous financial reporting, restated financials, fraud, etc. were squarely voted down by mutual funds in 2008. From a high of 33% of mainstream mutual fund votes in support in 2008 (averaged across fund groups), the five resolutions in this category earned a mere 2.2% average votes in support in 2008.
Fund Votes is an independent project started in 2004 by Jackie Cook. Its primary objective is to track mutual fund proxy voting in the US and Canada. Over 12.5 million voting decisions spanning five years of mutual fund disclosures in the US and two in Canada have been indexed against shareholder resolutions and other key data. Data drawn from Fund Votes’ proprietary mutual fund voting and shareholder resolutions databases have been used in a number of industry reports and news articles.