Workers' group says mutual funds played role in CEO pay
— -- Mutual funds share the blame for excessive CEO pay, according to a study by the American Federation of State, County and Municipal Employees.
Investors have $3.1 trillion invested in stock mutual funds, and the fund managers vote their powerful proxies in corporate elections. AFSCME says that many funds often vote against shareholder initiatives to align pay with performance.
The worst offenders: AllianceBernstein, Barclays and Columbia. Most likely to vote to constrain pay: T. Rowe Price, Schwab and Templeton.
AFSCME gave kudos to OppenheimerFunds, which ranked as a "pay enabler" in 2005 but became a "pay constrainer" in the 2008 study. AIM funds rose to a top "pay constrainer" in 2008.
The study examined proxy votes by the 26 largest fund companies, which account for about 80% of the mutual fund industry's assets. AFSCME looked at votes on compensation proposals by corporate management, shareholder proposals dealing with compensation, and the election of some directors.
The funds' voting patterns on CEO pay is getting worse, AFSCME says. "It was a big surprise to us, given the outrage over pay," says Richard Ferlauto, AFSCME's director of corporate governance. However, the study covered the 12 months ended June 2008 — before the storm about CEO pay hit its peak.
Ferlauto says some funds have an inherent conflict of interest: The Columbia funds, for example, are owned by Bank of America.
Funds took issue with the study. "We vote in the economic best interests of the shareholder," says Barclays spokesman Lance Berg.
"We vote shares in a manner consistent with fiduciary duty, in the best interest of our clients," says John Meyers, spokesman for AllianceBernstein.
A 2008 study by the Investment Company Institute, the funds' trade group, found that funds often voted in shareholders' best interests, rejecting anti-takeover defenses and siding with shareholder proposals 40% of the time. Corporate boards support shareholder proposals 1% of the time. "Mutual funds strongly support sound shareholder proposals — including proposals on executive compensation," says ICI spokesman Mike McNamee.
