Research

Mutual funds failing to moderate executive pay

The AFSCME union has lambasted some of the US’ largest mutual funds for supporting management pay increases and voting against shareholder proposals to align pay with performance.

The AFSCME’s report, Failed Fiduciaries: Mutual Fund Proxy Voting on CEO Compensation, found that in 2006 AllianceBernstein, Barclays Global Investors and AIM backed executive pay proposals more than any other mutual funds in the US. Alliance supported 94.8% of all management compensation proposals and only 31.1% of selected shareholder proposals.

The AFSCME quoted a 2005 Watson Wyatt survey that found nine in 10 institutional investors believe the current system overpays executives. However, the union argued that despite this mutual fund proxy voting is not being used to curb pay abuse: in 2006 the average level of support for management compensation proposals was 75.8%, up slightly from 75.6% in 2005.

Gerald McEntee, AFSCME president, said: “These mutual funds are failing to protect the assets of their clients. CEOs should be paid for performance. Investors in these mutual funds should be outraged that their assets are being used to prop up undeserved CEO pay”.

July 2007