Compensation Accomplices Mutual Funds and the Overpaid American CEO

Source: American Federation of State, County and Municipal Employees, The Corporate Library and The Shareowner Education Network, 2009

In this report, “Compensation Accomplices: Mutual Funds and the Overpaid American CEO,” we analyze the role that mutual funds play as large shareholders with proxy voting fiduciary responsibility. Mutual fund voting power must be brought to bear if executive pay is to be reformed by shareholders. Of the more than $12 trillion invested in mutual funds at year-end 2007, $6.52 trillion was invested in equity funds and another $713 billion was applied to hybrid funds.3 All told, mutual funds hold about 27 percent of the market capitalization of all U.S. companies.4 Mutual fund assets are highly concentrated, with the 10 largest fund families managing 50 percent of all fund assets.

Unfortunately, our report finds that mutual funds are increasingly supportive, as a group, of management positions on proposals dealing with executive pay, despite the current outrage over CEO pay amounts and disconnection from company performance. As a group, the 26 mutual fund families had the following voting patterns:
– The average level of support for management proposals on compensation issues was 82% in 2007 and 84% in 2008, a steady increase from 75.8% in 2006.
– The average level of support for the categories of compensation-related shareholder proposals we selected was 42% in 2007 and 40% in 2008. This represents a significant decrease from the 46.5% support found in 2006.

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