In Contrast to Increased Support for ESG Issues, Article Hits Mainstream Investors for High Say on Pay Support
August 26, 2017
In a year which saw record increases in shareholder support for environmental, social, and governance proposals, top funds State Street and Blackrock are the subject of new research by Proxy Insight which finds that the funds likely supported company say on pay proposals over 90% of the time and contrasts that support to the funds' increased support for climate and diversity proposals in 2017. According to Reuters, “The continued strong support [for say on pay] helps explain how CEO pay keeps rising, part of a broader debate over inequality, even as large corporations changed their stances on climate and social issues under pressure from investors,” even as the article acknowledges the 9.5% increase in the S&P 500 index in 2016 and many other reports have acknowledged pay for performance alignment. The research may reflect the continuation of a strategy which emerged 18 months ago by certain advocates to impact change in corporate behavior. Prior to this strategy, pay and governance activists sought to pressure companies directly to make the desired changes to issuers’ compensation and governance policies. However, activists have largely begun to reinforce this strategy by instead targeting major mainstream investors - like Blackrock and State Street - and pressuring them to make policy changes – such as support for environmental and diversity shareholder proposals -- which have a greater persuasive effect on the companies in which they invest.
With respect to say on pay, Reuters reports that Proxy Insight estimated Blackrock supported 97% of company say on pay proposals, based on voting tallies from eight outside funds that BlackRock votes, and reported that State Street supported say on pay at 94% of companies in the first half of the year. The funds must file their complete annual voting reports by August 31. The article also notes the complexity of pay, compared to, for example, voting for directors, may lead investors to support say on pay votes. The article quotes IRRC Institute’s Jon Lukomnic that “If you vote ’no’ on executive comp, does it mean you don’t like how it is structured? Or you don’t like the total amount?... When it’s a close call, [investors] tend to vote ’yes’.”