Few investors want to lavish rewards on corporate executives for a lousy performance. But if you own shares in a mutual fund, there's a good chance you are doing just that.
A study of the proxy voting records of 29 mutual fund families by the American Federation of State, County and Municipal Employees, the Corporate Library and the Shareowner Education Group indicates that between July 2005 and June 2006, fund managers backed management-sponsored proposals on executive compensation just over three-quarters, or 75.8%, of the time.
That represents a slight uptick from 75.6% during the year-earlier period.
"These mutual funds are failing to protect the assets of their clients," says Gerald W. McEntee, president of AFSCME. "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."The year the first study was conducted, the median compensation of the CEO at an S&P 500 company jumped almost 24%. You might expect that such generous compensation would pay for itself through company performance. But the authors of the report cite research showing that among S&P 500 companies, the largest increases in total compensation actually correlated poorly with improvements in long-term corporate performance. Since mutual funds are among the largest shareholders of any public company, they generally hold a lot of sway in determining CEO pay. According to the report, "
|Is Your Fund an Enabler or a Constrainer?
U.S. funds ranked by dilligence in keeping CEO pay scales in check
|1||TIAA-CREF Asset Management|
|2||T. Rowe Price Group|
|5||J.P. Morgan Funds|
|6T||Janus Capital Group|
|8||Legg Mason Funds|
|10T||MFS Investment Management|
|13T||American Century Investment Management|
|16||Smith Barney Asset Management|
|21||Morgan Stanley Funds|
|22||Van Kampen Investments|
|24T||Merrill Lynch Investment Managers|
|28||Barclays Global Investors|
|T = Tied
Source: The American Federation of State, County and Municipal Employees (AFSCME), the Corporate Library and the Shareowner Education Group.