Pay deals for top company bosses in the US face mounting opposition from some of Europe’s most influential investors even as their large American counterparts continue to provide solid support for exorbitant executive remuneration packages.
The investment arms of UBS, Axa, Legal & General, BNP Paribas along with APG, Europe’s largest pension fund, voted against significantly more pay awards by S&P 500 companies in the 12 months to June 30, according to Proxy Insight, the data provider.
“There has been too little opposition for far too long to the scale and structure of US executive pay but European investors now appear much more willing to challenge awards,” said Tom Powdrill, a responsible investment specialist at Pirc, the shareholder advisory service.
UBS and APG voted in favour of less than a third of pay proposals at S&P 500 companies, known an “say on pay” resolutions, while BNP Paribas voted in favour of fewer than one-in-five awards.
“While it is too simplistic to say that all European investors oppose US executive pay awards more often than their US peers, it is certainly the case that some of the most robust opposition is from Europe,” said Nick Dawson, managing director at Proxy Insight.
Axa Investment Managers, which voted in favour of less than two-thirds of US remuneration awards, said it had toughened its approach since the start of 2019 by demanding stronger alignment between pay and performance.
“Our approach targets those laggards where performance-linked pay is still underutilised and does not make up at least half of incentive awards granted,” Axa said.
BlackRock and Vanguard, however, both voted in favour of more than 97 per cent of S&P 500 say on pay proposals, according to the latest annual Proxy Insight data.
As the world’s two largest asset managers, BlackRock and Vanguard appear increasingly out of step with other investors as more than 8 per cent of say on pay votes across the Russell 3,000 index of US companies failed to win more than 70 per cent support from shareholders.
Larry Fink, BlackRock chief executive, has earned around $411m over the past decade. Some observers argue that the generous packages granted to asset management CEOs make it difficult for them to criticise pay awards made by other companies. Vanguard, which is owned by the shareholders in its funds, does not disclose any details about the pay of its chief executive, Tim Buckley.
The median pay among S&P 500 CEOs reached a new high of $12.5m in fiscal year 2018, according to ISS, the shareholder advisory service. The median pay raise for S&P 500 chief executives that remained in office was 5.3 per cent, down from 9.5 per cent the previous year.
“High executive pay can reduce the money available for investment, research and development and even salaries for ordinary workers,” said Ashley Walsh, head of policy and research at the High Pay Centre.
State Street, Fidelity and JPMorgan Asset Management all voted in favour of more than 90 per cent of S&P 500 say on pay proposals.
Steven Clifford, author of “The CEO Pay Machine”, said: “An asset manager which is owned by a bank or insurer can find it difficult to oppose pay awards when the group parent has other commercially sensitive relationships with the investee company.”
BlackRock, Vanguard and JPMorgan together with 178 other US CEO’s have signed up to corporate governance standards devised by the Business Roundtable.
The signatories have pledged to run their companies for the benefit of all stakeholders, including customers and employees, instead of just shareholders. But the reluctance of large asset managers to oppose executive pay awards raises doubts about their willingness to vote against companies on more problematic governance or environmental issues.
“The risk is that more investor inflows may go to managers that are less likely to oppose executive pay awards and also to challenge companies over issues such as adapting to climate change,” said Mr Powdrill.