For the past four years As You Sow has issued this report highlighting the 100 most overpaid CEOs among the 500 companies in the S&P500 index. The report’s prime focus is shareholder votes on these pay packages, particularly the votes of large financial managers, mutual funds, and pension funds.
CEO compensation as it is currently structured in the United States does not provoke positive economic outcomes like sustainable company growth. Instead it incentivizes focus on numeric goals that can be easily financially engineered. Many of the metrics that drive CEO pay are short-term and provoke decisions with negative long-term impact; underinvestment in research and development and choices that have long-term negative environmental impact. High CEO pay over-emphasizes the impact of a single individual at a company, rather than rewarding the work of the many company employees. It raises economic inequality to such a level that it becomes increasingly incompatible with a well-functioning economic system.
Manfred F. R. Kets de Vriescalls, of INSEAD -- a graduate business school with campuses in Europe, Asia and the Middle East -- wrote recently that inflated CEO pay is “a sign of impending rot.”
Overpaying the CEO of a company can lead many people to make the false assumption that such compensation is "earned" and justified. It is not. Indeed, the average corporation in its annual proxy statement devotes about ten thousand words to justify those large payments to their CEOs, often rationalizing those large payments by calling them "performance" based and market rate (citing as peers only overpaid CEOs).
Shareholder votes on CEO pay packages provide a critical and underutilized tool for restraining the worst excesses.
This report seeks to identify which financial managers are exercising their fiduciary responsibility and voting against these excessive payments. And conversely, which ones are simply rubber stamping their approval to ever-increasing CEO pay in company after company.
In prior years we employed a methodology using two rankings to identify the 100 most overpaid CEOs. For one ranking we used a regression based on total shareholder return (TSR) conducted by HIP Investor. For the other ranking we combined an aggregated score of 30 problematic pay practices ("red flags"). These two rankings were weighted equally to create a final ranking. Doing this we found a high correlation between the companies on our final list and those that received the highest level of opposition from shareholders voting on these pay packages at the annual meetings.
This year we focused the report on large asset owner voting and created a simpler methodology that still used two rankings. The first is the same HIP Investor regression we’ve used every year that highlights excess pay based on TSR. The second ranking used the lowest proxy votes for pay packages at S&P 500 companies as a stand-in for the more detailed red flag methodology. These two rankings were weighted 2:1 with the regression analysis being the majority. We also excluded those CEOs whose total disclosed compensation (TDC) was in the lowest third of all S&P 500 CEO pay packages. The full list of the 100 most overpaid CEOs using this methodology is found in Appendix A. The regression analysis of predicted and excess pay performed by HIP Investor is found in Appendix C and its methodology is more fully explained there.
There are three companies – Comcast, ExxonMobil, and Oracle – that have now been on the list every year. An additional five are also repeats from last year: Chesapeake Energy, Citrix, Discovery Communications, Regeneron Pharmaceuticals, and Wynn Resorts.
|Rank||Company Name||CEO at Time of Proxy Vote||Total Disclosed Compensation|
|1||ORACLE||Safra A. Catz / Mark Hurd||$82,065,708|
|2||ACTIVISION BLIZZARD||Robert A. Kotick||$33,065,560|
|3||JOHNSON CONTROLS INTERNATIONAL PLC||Alex Molinaroli||$46,396,770|
|4||CHARTER COMMS.CL.A||Thomas M. Rutledge||$98,515,727|
|5||ALPHABET 'A'||Sundar Pichai||$199,718,200|
|6||WYNN RESORTS||Stephen Wynn||$28,156,985|
|7||INTERNATIONAL BUSINESS MACHINES||Virginia Rometty||$32,695,699|
|8||REGENERON PHARMS.||Leonard S. Schleifer||$28,337,520|
|9||DISCOVERY COMMS.'A'||David M. Zaslav||$37,192,354|
|10||SL GREEN REALTY||Marc Holliday||$17,326,371|
|11||TWENTY-FIRST CENTURY FOX CL.A||James Murdoch||$26,379,673|
|12||WALT DISNEY||Robert Iger||$43,882,396|
|13||EXXON MOBIL||Rex Tillerson||$27,393,567|
|14||WILLIS TOWERS WATSON||John Haley||$28,846,121|
|15||CONOCOPHILLIPS||Ryan M. Lance||$19,212,038|
|16||LENNAR 'A'||Stuart Miller||$19,225,403|
|17||ESTEE LAUDER COS.'A'||Fabrizio Freda||$48,369,401|
|19||MCKESSON||John H. Hammergren||$23,649,638|
|20||CITRIX SYS.||Kirill Tatarinov||$22,273,969|
|21||HEWLETT PACKARD ENTER.||Margaret Whitman||$35,564,351|
|22||COMCAST 'A'||Brian Roberts||$32,963,491|
|23||VERTEX PHARMS.||Jeffrey M. Leiden||$17,419,758|
|24||TIME WARNER||Jeffrey L. Bewkes||$32,614,304|
|25||CHESAPEAKE ENERGY||Robert D. Lawler||$15,283,363|
This report continues to represent the broadest survey of institutional voting ever done on the topic.
The largest fund managers, in terms of Assets Under Management (AUM), appear to be the most reluctant to vote against compensation packages.
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While both BlackRock and Vanguard have finally begun to speak out on the issue, their votes do not reflect this. The typical mutual fund with $500 billion or more in AUM (there are 19 of them) voted against 12% of the CEO pay packages in the S&P 500, yet Blackrock and Vanguard voted against only 3%.
Large non-US investment managers and pension funds are more likely to vote against CEO pay packages.
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Non-US funds increasingly recognize that CEO compensation at US companies reflects a broken system. Allianz, headquartered in Germany, voted against 79% of the overpaid CEO packages. Natixis a privately-owned asset management holding company based in Paris voted against 46%. PGGM, a leading Dutch pension administrator with $251.6 billion in assets, voted against 97.2% of all CEO pay votes at S&P 500 companies.
Institutional shareholder votes on pay vary considerably, with pension funds far better at exercising fiduciary responsibilities.
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Again, this year we found that pension funds are more likely to vote against overpaid compensation packages than mutual funds. Several voted against more than half of the overpaid CEO pay packages; a few came close to voting against half of the entire S&P 500. On the other side of the spectrum, we also highlight the Pennsylvania State Employee Retirement System which voted to approve every CEO pay package at every company in the S&P 500.
The companies with overpaid CEOs we identified in our first report have markedly underperformed the S&P 500.
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Last year we did an analysis exploring how firms’ stock value has performed since we first identified the CEOs as overpaid. Last year we reported that the 10 companies we identified as having the most overpaid CEOs, in aggregate, underperformed the S&P 500 index by an incredible 10.5 percentage points and actually lost shareholder value with a negative 5.7 percent financial return. The trend held true as we added an additional year’s data. Again, this year, the 10 firms with the most overpaid CEOs, in aggregate, dramatically underperformed the S&P 500 index by an embarrassing 15.6 percentage points.
How do funds vote on the Most Overpaid 100 CEOs?
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PROXY ADVISOR VOTING RECOMMENDATIONS ON CEO PAY PACKAGES
Financial managers often rely on proxy advisors to evaluate CEO pay packages. The two largest advisors, Institutional Shareholder Services (ISS) and Glass Lewis, compete with several smaller advisors like Egan Jones, Segal Marco, and PIRC.
ISS recommended voting against 10% of the CEO pay packages at S&P 500 companies, and 38 of the 100 most overpaid CEOs.
Glass Lewis recommended shareholders vote against 14% of CEO pay packages out of all the S&P 500 companies, and 42 of the 100 overpaid CEOs.
Egan-Jones Proxy Services recommended 30% of pay packages at S&P 500 and against 42 of the 100 most overpaid CEOs
Segal Marco Advisors, which provides proxy voting services to multi-employer and public pension funds, recommended shareholders vote against 43% of pay packages at S&P 500 companies 57 of the overpaid CEOs.
PIRC, one of the largest proxy advisors in Europe recommended votes against at 58% of S&P 500 companies. They recommended voting against 67 of the companies with the lowest votes, and abstained on the remaining 32 in its portfolio.
Despite the very low rate of recommendations by some advisors to vote against CEO pay packages, many mutual funds rejected the advice and voted in favor on at least some occasions. A recent Proxy Insight analysis, “Retaking the Wheel: ISS auto-voters take action to become even more passive” (June 2017)1 studied the ten largest investors by AUM who usually vote in accordance with ISS on most issues. The report analyzed the types of issues where the investors did not follow the ISS recommendation and found that they are more likely to approve pay packages that ISS opposed. They found that “auto-voters are more passive than ISS, overriding the proxy adviser in order to vote with management.”
A number of funds, BlackRock and Vanguard among them, have defended their lack of voting opposition to a philosophical preference for engagement, believing that the most effective way to shift corporate governance is through dialogue.
There is no way to verify whether these negotiations are having a meaningful effect on pay magnitude or specific pay practices and in fact the trends over time suggest they are not. Engagement without voting in opposition is practically meaningless as the New York Times reporter Gretchen Morgenson reported in her April 15, 2016 piece “BlackRock Wields its Big Stick Like a Wet Noodle on CEO Pay.” The votes are the only real way mutual fund clients and pension fund participants can evaluate how seriously these financial managers take this issue.
VOTES OF MANAGERS OF MUTUAL FUNDS AND ETFS
Again, this year we have analyzed how the largest investors in S&P 500 companies, namely mutual funds, ETFs, and public pension funds, have voted their shares on this issue. This enables us to see which ones are exercising their fiduciary responsibility and which are acquiescing to management in squandering company resources.
The mutual fund section of the report was based on data provided by Fund Votes, which has been tracking institutional proxy voting for more than 10 years. An explanation of the Unique Vote count methodology they use can be found in Appendix D.
In our first report, four years ago, there were only four large mutual fund groups that voted against 30% of the overpaid packages. Now, two years later, the number of large fund groups that exercise their fiduciary responsibility and vote against 30% of overpaid packages has tripled and stands at 12.
However, as can be seen in Figure 3 below, some of the very largest funds have the worst record of voting against pay packages.
However, as can be seen in Figure 4, funds that automatically support compensation packages are now the exception. This year there were 25 funds that voted against more than half of the 100 overpaid CEOs. Several of these are social investment funds.
As can be noted from the table above, non-US fund families have the highest levels of voting against.
Allianz Global Investors also has a strong record of voting against, as do many other funds who vote from a non-US perspective. In a Financial Times article, Eugenia Unanyants-Jackson, global head of environmental, social, and governance research at Allianz Global Investors said, “When we look at remuneration structures in UK or in some European markets, there is a much closer link between strategy and payouts, compared with US companies. We support variable remuneration, but we think it should only be paid if robust targets are made.”
Natixis, which also appears on this chart with a high level of opposition to these CEO pay packages is a privately-owned asset management holding company based in Paris, France.
As we will see, the same trend of higher opposition when U.S. CEO pay is evaluated by those outside the U.S. is evident with pension funds as well.
Blackrock $5.4 trillion AUM (note: all AUM referenced in this report is based on Proxy Insight most recent disclosure)
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In a recent and much commented on letter to companies, Blackrock CEO Larry Fink wrote, "In managing our index funds, however, BlackRock cannot express its disapproval by selling the company's securities as long as that company remains in the relevant index. As a result, our responsibility to engage and vote is more important than ever. In this sense, index investors are the ultimate long-term investors - providing patient capital for companies to grow and prosper."
Blackrock votes against only 11 of the 100 Overpaid CEO pay packages. Out of the S&P 500 companies Blackrock voted on between 7/1/2016 and 6/30/2017, they opposed only 3.4% of packages and voted in favor at 92.7%according to Proxy Insight data. The prior year they supported 98.3% and opposed 1.7%. From 2014 to 2015, Blackrock cast votes against pay packages at less than 1% of the companies it held in the S&P 500 index. It is good to see improvement, but despite this improvement they are way below their peers.
Vanguard - $3.8 trillion AUM
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Vanguard voted against only 12% of the 100 Overpaid CEO pay packages. Out of the S&P 500 companies itvoted on between 7/1/2016 and 6/30/2017, Vanguard only opposed 3.3% of the packages, while approving 96.5%. The prior year it opposed 1.8 percent.
State Street Global Advisors (SSGA) - $2.5 trillion AUM
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State Street voted against approximately twice as many as Blackrock and Vanguard; voting against 21% of the Overpaid CEO pay packages and 6% of all S&P 500 companies this year.
In May 2016 SSGA had reached out to companies with concerns regarding compensation in a document, entitled, "Guidelines for Mitigating Reputational Risk in C-Suite Pay" noting that "Given the growing income inequality in the country, SSGA sees increased reputational risk arising from the high quantum of pay to C-Suite executives."
Thus the voting record has been much better than BlackRock or Vanguard, but Rakhi Kumar, head of corporate governance at SSGA explained to the Financial Times in early February that approximately 300 of those it voted in favor of received "qualified support." In past seasons, there were times that a concern about structure or lump sum caused discomfort, but didn't rise to the level where SSGA wanted to oppose the pay package in its entirety. This year when the fund has serious reservations instead of voting for such packages it plans to abstain. "It's something typically we supported with a heavy heart," Kumar told the Financial Times, "that will be more transparent now."
BNY Mellon - $1.7 trillion AUM
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Among funds with over $1 trillion in AUM, BNY Mellon had the best voting record. It voted against 48% of the Overpaid CEO pay packages and 27% of CEO pay packages at the S&P 500 companies it holds.
BNY Mellon votes proxies for a number of funds, including Wisdomtree Funds and Lattice Funds. In prior years we listed each fund separately.
Their guidelines appear to be thoughtfully written, likely by someone who understands issues around compensation rather than put together by a committee of people compiling what they understood to be best practices. BNY Mellon warns that it "looks for value creation rather than actions that artificially inflate share price in the short-term."
In terms of pay quantum, "The firm is aware of outsized compensation packages that are not tied to extraordinary innovation, growth or other shareholder benefit."
Dimensional - $414 billion AUM
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Dimensional voted against 57% of the Overpaid CEO pay packages and 18% of CEO pay at all S&P 500 companies this year. Its level of opposition has grown perhaps more than any other fund we cover. In our first report the fund voted against 20% of overpaid CEOs; in our second 46%; in our third 53%. Dimensional's proxy voting guidelines outline five principles used in executive pay evaluation, including avoiding "arrangements that risk 'pay for failure': This principle addresses the appropriateness of long or indefinite contracts, excessive severance packages, and guaranteed compensation."
TIAA - $220.9 billion AUM
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TIAA-CREF stands for Teachers Insurance and Annuity Association - College Retirement Equities Fund. Though the name has changed over the years, its role as a financial service company serving educators remains unchanged.
In 2014 TIAA acquired Nuveen, and in 2017 it took the brand name Nuveen for all asset management business including its 12 investment affiliates. TIAA Investments, however, remains the largest affiliate and makes up 85% of public equity AUM.
TIAA voted against only 3% of CEO pay packages at S&P 500 companies, and 9% of those at Overpaid CEOs.
A spokesperson from Nuveen told us in an email that the "focus of the dedicated group that oversees voting on behalf of TIAA Investments is actually to influence corporations through proactive engagement and discussion with management teams and boards regarding the best practices we like to see adopted by the companies in which we invest."
A few other investment affiliates continue to cast proxy votes, typically following ISS guidelines according to the spokesperson, and the disclosure for those funds (under the name Nuveen) lines up almost exactly with votes 9.6% of all S&P 500 CEO pay votes it cast, and 44% of those at Overpaid CEO companies.
VOTES BY PENSION FUNDS
As can be seen from Figure 5, pension funds typically have a higher level of opposition to overpaid CEOs. The opposition level to the overpaid CEOs was more than 50% at 15 of the funds. As with mutual funds, non-US pension funds had the highest levels of opposition. Of the Canadian funds, Alberta Investment Management Corporation (AIMco) and British Columbia Investment Management Corporation (bcIMC) both had opposition levels over 70% on the overpaid CEO packages.
PGGM, a leading Dutch pension administrator with $251.6 billion in assets, voted against 97.2% of all CEO pay votes at S&P 500 companies.
The Northern Ireland Local Government Officers Superannuation Committee (NILGOSC), with $7.3 billion in AUM, held over one fifth of the companies in the S&P 500, and voted against pay at 94% of them.
In addition, several UK pension funds use the voting services from Pensions and Investments Research Consultant (PIRC). Among these are the pension funds are Lancashire County, Suffolk County, Islington Council, North Yorkshire Pension Fund, and others. It is very likely, then, that these funds would have voted against 62% of Overpaid CEO packages.
Norges –AUM $1 trillion
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Norges Bank is the largest sovereign wealth funds (SWF) in the world. SWFs are created with government money, typically from earnings on natural resources (in this case oil). The fund, created by the government of Norway in 1990, has taken some progressive stances on climate and other issues in recent years.
Norges opposed CEO pay packages at only 6% of the companies in the S&P 500. Its voting record stands in stark contrast to those of other European funds.
Norges has become more outspoken regarding concerns about excessive executive compensation and has increased its level of opposition to overpaid CEOs but the increase came from a very low level, closer to 3% The fund prefers dialogue, however, Yngve Slyngstad, the fund’s chief executive, told the Financial Times on February 13, “If there are pay structures that are so far from our view, for instance being so complex that we don’t understand them, we will vote against them.”
As can be noted in the above figure, many pension fund votes settle around the level of opposition of the leading proxy advisors at these companies, 44% and 54% for ISS and Glass Lewis, respectively. This suggests they may simply vote the guidelines directly. The University of California is not listed above because we were unable to get their records, but follows ISS’s recommendations. However, more and more public pension funds are showing keener analysis and voting against companies even where the advisors recommend in favor.
Florida State Pension Fund – AUM $191.5 billion
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One pension fund that stands out is the Florida State Pension Fund. This fund which is administered by the Florida State Board of Administration (SBA), voted against 41% of CEO pay packages of the S&P 500 companies; they voted against 73% of the 100 Overpaid CEO pay packages.
Some of the language in the SBA guidelines is similar to that of other investors; calling for proper alignment of pay and performance, better disclosure and so forth. But the SBA sets the tone for voting in its guidelines: “SBA look for reasonable compensation levels, both on an absolute basis and relative to peers.” The fund notes that “high compensation levels on absolute or peer-relative basis” may cause a vote against a compensation plan.
The fund lists approximately 20 other practices or concerns that may result in a vote against and advisory pay vote, providing a fair level of specificity. For example, it notes that “poor disclosure of performance metrics, thresholds and targets” may result in a vote against, rather than simply listing generic “poor disclosure” as a concern.
The SBA is one of the funds that discloses the rationale for its voting on its website, where that data is collected by Proxy Insight. Using that data, we were able to investigate a sampling of its votes. The rationale we found that was used most often was that a company “received a grade lower than a C in the Pay for Performance model.” (This was the rationale for votes against Bed, Bath & Beyond, ConocoPhillips, Freeport, Mylan, and SL Green Realty among others).
Los Angeles County Employees Retirement Association (LACERA) – $45.9 billion AUM
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Of the public pension funds, LACERA is one that has shown the most improvement since last year. It went from voting less than 7% of S&P 500 companies last year to more than 10% of S&P 500 companies in its portfolio this year.
The fund voted against 10.3% of pay packages of the S&P 500 companies; they voted against 35% of the 100 Overpaid CEO pay packages.
New York City Funds - $192 billion AUM
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There are a number of New York City Funds that together, under the Bureau of Asset Management at the Office of the Comptroller Scott Stringer, have a division called the Corporate Governance and Responsible Investment that casts votes and leads governance initiatives.
The fund voted against 26% of pay packages of the S&P 500 companies and against 67% of the 100 Overpaid CEO pay packages.
In spring 2017 it helped lead the most powerful vote-no-on-compensation campaign of the year at Mylan. The New York City Pension Funds have been attempting reform for over five years, filing well-supported proposals that called for an independent chair at meetings in 2012, 2013, and 2014. In 2017 – amid a public and regulatory backlash for the price‐hiking controversy involving Mylan’s EpiPen – the New York City Funds joined by CalSTRS, the New York State Comptroller, and Dutch pension fund PGGM filed an exempt solicitation urging shareholders to vote against six directors as well as the CEO pay package. As the funds’ 2017 Shareowner Initiatives report notes, “In a stinging rebuke to the board, Mylan shareowners subsequently cast an extraordinary 83.5 percent of their votes cast against executive pay and majority or near majority votes (from 29 to 56 percent) against the six directors.”
California Public Employees’ Retirement System (CalPERS) AUM $323.5 billion
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The fund, which manages pension and health benefits for more than 1.6 million California public employees, retirees, and their families, has long been a corporate governance leader.
CalPERS voted against 16.5% of pay packages of the S&P 500 companies; they voted against 53% of the 100 Overpaid CEO pay packages. CalPERS opposition level to pay packages has been increasing at a slow by steady rate since 2012, when they opposed only 6% of pay packages.
California State Teachers' Retirement System (CalSTRS) - AUM $221.7 billion
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CalSTRS, the largest teacher retirement fund in the United States provides retirement and other benefits for nearly 1,000,000 California educators.
The fund voted against 17% of pay packages of the S&P 500 companies; they voted against 61% of the 100 Overpaid CEO pay packages.
Amalgamated Bank - AUM $17.8 billion
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The Amalgamated bank was founded by the Amalgamated Clothing Workers of America in 1923. In 1992 the Amalgamated Bank introduced its LongView Equity Index Fund, which provides union pension funds with investment products and actively advocates for enhanced shareholder value.
Amalgamated Bank voted against packages at 43% of pay packages at S&P 500 companies and 57% of the overpaid CEO packages.
Pennsylvania State Employee Retirement System - AUM $28.9 billion
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One public pension fund, Pennsylvania State Employee Retirement System voted in favor of every single CEO pay package in its portfolio. This makes it an extraordinary outlier, and it makes no pretentions of engagement. Emails reaching out to the fund were not returned. This record does not seem to be explained by the guidelines that state that, “If a management ’say-on-pay’ proposal is on the ballot, SERS will use this as the primary focus of voting on executive compensation practices’ but may also vote against compensation committee members.”
The 100% support means that it voted in favor of the pay package at Mylan, making it the only public fund that supported it. This vote is also in contrast to voting patterns of other funds in the same state, including Pennsylvania Public School Employees Retirement System, which voted against 17% of the Overpaid CEOs packages.
Following up on the As You Sow report regarding shareholder votes on CEO pay, ISS has indicated that due to an internal miscommunication within the ISS team, it incorrectly executed “Say on Pay” votes on SERS’ behalf. ISS has confirmed the erroneous votes did not change the final result of any of the impacted voting items. As a result of identifying the error, SERS has been advised that an additional layer of review and sign-off has been added to the controls ISS currently has in place regarding the implementation of policy changes. Additionally, ISS and SERS will be setting up quarterly calls to review the proxy votes taken to ensure that the votes are in compliance with the SERS Proxy Voting Policy and current best practices. Furthermore, the call agenda will include any other current action items, governance matters of interest, and other topics related to the services ISS is providing to SERS.
A Look at Specific Votes
This year for the first time in the report we are including a table that allows readers to view results from specific votes at particular companies. On the list we included a number of examples of prominent companies with evidence of overpay or problematic practices.
We did not include votes at several companies where all advisors recommended against: Alphabet, Chesapeake, Mylan, Oracle, and SLGreen.
General Electric’s compensation package serves as one example. It was supported by 89.2% of investors. Since that vote, the company revealed that the SEC is investigating accounting charges the company took following vastly under estimating the costs of long-term care and other policies. By February 2, 2018 the stock was down 40% from one year earlier. Well before this broke, several investors – primarily large pension funds -- had various concerns about compensation and voted against the advisory vote.
The largest investor in GE that voted against the CEO pay package was its 4th largest shareholder, Capital World/American Investors.
In some cases, the rationales against the vote are made available. Funds voting against GE’s compensation listed as their rationale such reasons as:
- Does not sufficiently align pay with performance, as it lacks disclosure and as there are features that are not in line with best practices (British Columbia Investment Management)
- The remuneration committee should not allow vesting of incentive awards for below median performance (BMO Global)
- The short-term incentive plan allows for positive discretionary adjustments to payout and this discretion was exercised. The long-term incentive program thresholds and maximums are not sufficiently disclosed (NEI Investment)
- The CEO's total compensation is greater than 150 times national median household income. The CEO's total compensation is greater than the median of its direct peers. (Trillium Asset Management)
The State of Wisconsin, however, voted in favor of the proposal with “qualified support.” In addition to raising concerns about perquisites and disclosure, the fund added, “There is a discretionary component to the short-term incentive program. A discretionary bonus was paid in the previous year.”
The chart of mutual funds below, however, shows that while some large funds voted against these excessive packages, there were some who voted for the majority.
As can be seen from the following chart, Pension Funds were more likely to vote against Overpaid CEO pay packages than were the mutual funds.
The Dodd-Frank Financial Reform Act gives shareholders the right to cast an advisory vote (Say-on-Pay) on CEO pay packages. Institutional investors, having the fiduciary responsibility to represent asset owners and pension beneficiaries need to use this right to make a statement that the system is out of balance and they want change. In addition, those who own mutual funds through 401(k)s and other investment vehicles must hold fund managers accountable and insist that representatives also exercise this responsibility rigorously. The waste of corporate resources impacts not only the company but polarizes society at large with far reaching implications on the economy. Shareholders have the tools to have their voices heard. Now they need to use them.
A– Overpaid Companies
|1||ORACLE||Safra A. Catz / Mark Hurd||82,065,708.00||64,769,671||45%|
|2||ACTIVISION BLIZZARD||Robert A. Kotick||33,065,560.00||20,476,785||60%|
|3||JOHNSON CONTROLS INTERNATIONAL PLC||Alex Molinaroli||46,396,770.00||28,284,218||64%|
|4||CHARTER COMMS||Thomas M. Rutledge||98,515,727.00||81,707,824||70%|
|6||WYNN RESORTS||Stephen Wynn||28,156,985.00||14,170,094||59%|
|7||INTERNATIONAL BUSINESS MACHINES||Virginia Rometty||32,695,699.00||13,675,053||54%|
|8||REGENERON PHARMS.||Leonard S. Schleifer||28,337,520.00||16,898,830||67%|
|9||DISCOVERY COMMUNICATIONS||David M. Zaslav||37,192,354.00||25,742,206||69%|
|10||SL GREEN REALTY||Marc Holliday||17,326,371.00||9,303,758||43%|
|11||TWENTY-FIRST CENTURY FOX CL.A||James Murdoch||26,379,673.00||12,647,981||69%|
|12||WALT DISNEY||Robert Iger||43,882,396.00||25,848,083||84%|
|13||EXXON MOBIL||Rex Tillerson||27,393,567.00||11,500,346||69%|
|14||WILLIS TOWERS WATSON||John Haley||28,846,121.00||13,871,476||86%|
|15||CONOCOPHILLIPS||Ryan M. Lance||19,212,038.00||6,540,199||32%|
|17||ESTEE LAUDER COS||Fabrizio Freda||48,369,401.00||33,142,031||92%|
|19||MCKESSON||John H. Hammergren||23,649,638.00||7,434,929||81%|
|20||CITRIX SYS.||Kirill Tatarinov||22,273,969.00||10,158,155||86%|
|21||HEWLETT PACKARD ENTER.||Margaret Whitman||35,564,351.00||8,627,593||84%|
|23||VERTEX PHARMS.||Jeffrey M. Leiden||17,419,758.00||7,943,035||83%|
|24||TIME WARNER||Jeffrey L. Bewkes||32,614,304.00||18,395,854||93%|
|25||CHESAPEAKE ENERGY||Robert D. Lawler||15,283,363.00||5,536,612||57%|
|26||BLACKROCK||Laurence D. Fink||25,472,831.00||12,514,503||90%|
|29||ALTRIA GROUP||Martin J. Barrington||27,573,566.00||15,484,058||93%|
|30||FISERV||Jeffery W. Yabuki||21,241,782.00||7,138,843||85%|
|31||DOW CHEMICAL||Andrew N. Liveris||22,963,059.00||7,291,141||88%|
|32||ADV.AUTO PARTS||Thomas R. Greco||22,820,767.00||6,720,725||86%|
|33||ALEXANDRIA REAL ESTATE EQUITIES INC||Joel Marcus||11,307,499.00||5,715,258||82%|
|34||CENTENE||Michael F. Neidorff||21,968,983.00||7,167,397||89%|
|35||ANADARKO PETROLEUM||R. A. Walker||18,650,252.00||8,109,963||91%|
|36||AFFILIATED MANAGERS||Sean M. Healey||14,732,572.00||4,160,235||62%|
|38||NEWELL BRANDS||Michael B. Polk||21,684,542.00||5,996,439||86%|
|39||NEWMONT MINING||Gary J. Goldberg||16,590,094.00||4,124,597||67%|
|40||MACERICH||Arthur M. Coppola||13,537,911.00||6,006,553||89%|
|41||OMNICOM GROUP||John D. Wren||25,979,039.00||9,730,961||93%|
|42||FIDELITY NAT.INFO.SVS.||Gary A. Norcross||20,020,448.00||4,336,863||83%|
|43||JP MORGAN CHASE & CO.||James Dimon||27,236,892.00||8,707,634||93%|
|44||MASTERCARD||Ajay S. Banga||16,892,056.00||4,091,733||79%|
|45||LEUCADIA NATIONAL||Richard B. Handler||17,583,374.00||4,857,951||88%|
|46||PRUDENTIAL FINL.||John Strangfeld||24,444,255.00||8,965,038||93%|
|47||AMERIPRISE FINL.||James Cracchiolo||16,610,175.00||3,660,004||81%|
|48||MORGAN STANLEY||James P. Gorman||21,205,835.00||5,448,319||90%|
|49||CHEVRON||John S. Watson||24,657,491.00||9,221,166||94%|
|51||PIONEER NTRL.RES.||Scott Douglas Sheffield||15,003,350.00||4,622,031||90%|
|52||RANGE RES.||Jeffrey L. Ventura||9,862,925.00||2,843,459||69%|
|53||PHILLIPS 66||Greg Garland||25,055,294.00||11,849,965||94%|
|55||HALLIBURTON||David J. Lesar||17,846,913.00||2,511,095||66%|
|56||PROLOGIS||Hamid R. Moghadam||15,539,777.00||6,740,638||94%|
|57||VALERO ENERGY||Joseph W. Gorder||18,452,618.00||5,916,571||93%|
|58||JOHNSON & JOHNSON||Alex Gorsky||26,871,720.00||9,670,931||95%|
|60||GOLDMAN SACHS GP.||Lloyd Blankfein||20,206,898.00||5,445,653||93%|
|61||E*TRADE FINANCIAL||Paul T. Idzik||15,484,310.00||4,779,205||93%|
|62||AETNA||Mark T. Bertolini||18,662,306.00||3,032,289||85%|
|63||PULTE GROUP||Richard Dugas||20,495,607.00||9,547,230||95%|
|64||BED BATH & BEYOND||Steven H. Temares||16,946,399.00||1,427,275||44%|
|65||AMERICAN EXPRESS||Kenneth Chenault||17,463,639.00||1,910,634||73%|
|66||SOUTHERN||Thomas A. Fanning||15,829,652.00||1,403,394||61%|
|68||THERMO FISHER SCIENTIFIC||Marc N. Casper||17,800,661.00||2,036,977||83%|
|69||MONSTER BEVERAGE||Rodney Cyril Sacks||12,028,955.00||2,189,145||85%|
|70||GENERAL ELECTRIC||Jeffrey Immelt||21,324,524.00||2,637,687||89%|
|71||PENTAIR||Randall J. Hogan||15,583,493.00||1,435,235||76%|
|72||SIMON PROPERTY GROUP||David Simon||13,238,074.00||2,335,702||88%|
|73||EBAY||Devin N. Wenig||15,941,192.00||3,158,608||93%|
|74||FIRSTENERGY||Charles E. Jones||14,117,391.00||1,193,408||72%|
|76||XL GROUP||Michael S. McGavick||12,653,175.00||832,023||68%|
|77||CHUBB||Evan G. Greenberg||24,419,486.00||12,540,532||96%|
|78||COCA COLA||Muhtar Kent||17,551,944.00||950,951||75%|
|79||HONEYWELL INTL.||David Cote||21,261,501.00||3,938,645||94%|
|81||BOSTON PROPERTIES||Owen D. Thomas||10,002,021.00||2,648,831||93%|
|82||ROPER TECHNOLOGIES||Brian D. Jellison||26,316,166.00||13,247,723||96%|
|83||RALPH LAUREN||Stefan Larsson||16,196,875.00||2,593,063||93%|
|85||OCCIDENTAL PTL.||Vicki A. Hollub||12,998,495.00||709,732||83%|
|86||ADOBE SYSTEMS||Shantanu Narayen||20,035,334.00||6,565,060||96%|
|87||MERCK & COMPANY||Kenneth C. Frazier||21,781,170.00||5,826,922||95%|
|88||TRANSDIGM GROUP||W. Nicholas Howley||18,650,700.00||6,286,981||96%|
|89||CVS HEALTH||Larry J. Merlo||18,359,377.00||-74,629||61%|
|90||CABOT OIL & GAS||Dan Dinges||11,311,837.00||4,510,780||95%|
|91||TESORO||Gregory J. Goff||18,179,689.00||6,461,935||96%|
|93||LOCKHEED MARTIN||Marillyn Hewson||20,573,733.00||3,702,140||95%|
|94||ARCONIC INC.||Klaus Kleinfeld||16,805,788.00||1,905,728||93%|
|95||PINNACLE WEST CAP.||Donald E. Brandt||11,359,227.00||-121,648||71%|
|96||MONDELEZ INTERNATIONAL CL.A||Irene B. Rosenfeld||16,742,076.00||247,038||85%|
|97||PPL||William H. Spence||15,507,259.00||2,726,267||94%|
|98||MARATHON PETROLEUM||Gary Heminger||16,555,808.00||1,287,283||93%|
|100||ABBOTT LABORATORIES||Miles White||20,285,591.00||4,153,805||96%|
B– Overpaid Companies by Lowest Votes
The table shows the 100 CEOs whose pay packages received the lowest votes. Vote data from Fund Votes; Compensation data from ISS
|Rank||Company||CEO||Support for CEO Pay Votes||TDC|
|2||CONOCOPHILLIPS||Ryan M. Lance||32%||$19,212,038|
|3||SL GREEN REALTY||Marc Holliday||43%||$17,326,371|
|4||BED BATH & BEYOND||Steven H. Temares||44%||$19,409,668|
|5||ORACLE||Safra A. Catz||45%||$82,065,708|
|8||CHESAPEAKE ENERGY||Robert D. Lawler||57%||$15,283,363|
|10||WYNN RESORTS||Stephen Wynn||59%||$28,156,985|
|11||ACTIVISION BLIZZARD||Robert A. Kotick||60%||$33,065,560|
|12||SOUTHERN||Thomas A. Fanning||61%||$15,829,652|
|13||CVS HEALTH||Larry J. Merlo||61%||$18,359,377|
|14||AFFILIATED MANAGERS||Sean M. Healey||62%||$14,732,572|
|16||KANSAS CITY SOUTHERN||Patrick J. Ottensmeyer||62%||$5,873,554|
|17||JOHNSON CONTROLS INTERNATIONAL PLC||Alex Molinaroli||64%||$46,396,770|
|18||HALLIBURTON||David J. Lesar||66%||$17,846,913|
|19||REGENERON PHARMACEUTICALS||Leonard S. Schleifer||67%||$28,337,520|
|20||NEWMONT MINING||Gary J. Goldberg||67%||$16,590,094|
|22||UNION PACIFIC||Lance M. Fritz||68%||$11,643,137|
|23||XL GROUP||Michael S. McGavick||68%||$12,653,175|
|24||EXXON MOBIL||Rex Tillerson||69%||$27,393,567|
|25||RYDER SYSTEM||Robert E. Sanchez||69%||$5,105,686|
|26||RANGE RESOURCES||Jeffrey L. Ventura||69%||$9,862,925|
|27||TWENTY-FIRST CENTURY FOX||James Murdoch||69%||$26,379,673|
|28||DISCOVERY COMMUNICATIONS||David M. Zaslav||69%||$37,192,354|
|29||VERISK ANALYTICS||Scott G. Stephenson||69%||$6,927,202|
|30||CHARTER COMMUNICATIONS||Thomas M. Rutledge||70%||$98,515,727|
|31||PINNACLE WEST CAPITAL||Donald E. Brandt||71%||$11,359,227|
|32||FIRSTENERGY||Charles E. Jones||72%||$14,117,391|
|33||AMERICAN EXPRESS||Kenneth Chenault||73%||$17,463,639|
|34||E I DU PONT DE NEMOURS||Edward D. Breen||74%||$11,006,644|
|35||JUNIPER NETWORKS||Rami Rahim||75%||$7,544,013|
|36||COCA COLA||Muhtar Kent||75%||$17,551,944|
|37||US BANCORP||Richard Davis||75%||$15,345,994|
|39||PENTAIR||Randall J. Hogan||76%||$15,583,493|
|41||MASTERCARD||Ajay S. Banga||79%||$16,892,056|
|44||MCKESSON||John H. Hammergren||81%||$23,649,638|
|45||WYNDHAM WORLDWIDE||Stephen P. Holmes||81%||$10,535,048|
|46||AMERIPRISE FINANCIAL||James Cracchiolo||81%||$16,610,175|
|48||ALEXANDRIA REAL ESTATE EQUITIES||Joel Marcus||82%||$11,307,499|
|49||FIDELITY NATIONAL INFORMATION SERVICES||Gary A. Norcross||83%||$20,020,448|
|50||OCCIDENTAL PETROLEUM||Vicki A. Hollub||83%||$12,998,495|
|51||THERMO FISHER SCIENTIFIC||Marc N. Casper||83%||$17,800,661|
|52||WAL MART STORES||C. Douglas McMillon||83%||$22,352,143|
|53||VERTEX PHARMACEUTICALS||Jeffrey M. Leiden||83%||$17,419,758|
|54||DUKE ENERGY||Lynn Good||84%||$13,793,594|
|55||WHOLE FOODS MARKET||John Mackey||84%||$1,262,379|
|56||HEWLETT PACKARD ENTERPRISES||Margaret Whitman||84%||$35,564,351|
|57||WALT DISNEY||Robert Iger||84%||$43,882,396|
|59||AKAMAI TECHNOLOGIES||F. Thomson Leighton||84%||$6,258,770|
|60||AMERICAN ELECTRIC POWER||Nicholas Akins||85%||$11,472,740|
|61||UNITED DOMINION REALTY TRUST||Thomas W. Toomey||85%||$5,930,700|
|62||MONSTER BEVERAGE||Rodney Cyril Sacks||85%||$12,028,955|
|63||MONDELEZ INTERNATIONAL||Irene B. Rosenfeld||85%||$16,742,076|
|64||AETNA||Mark T. Bertolini||85%||$18,662,306|
|65||MICROCHIP TECHNOLOGY||Steve Sanghi||85%||$7,305,351|
|66||FISERV||Jeffery W. Yabuki||85%||$21,241,782|
|67||WILLIS TOWERS WATSON||Dominic Casserley||86%||$44,276,460|
|68||NEWELL BRANDS||Michael B. Polk||86%||$21,684,542|
|69||NIKE||Mark G. Parker||86%||$13,851,499|
|70||ADV.AUTO PARTS||Thomas R. Greco||86%||$22,820,767|
|71||CITRIX SYSTEMS||Kirill Tatarinov||86%||$22,273,969|
|72||METLIFE||Steven A. Kandarian||86%||$15,281,939|
|75||CENTURYLINK||Glen F. Post III||88%||$13,966,214|
|76||LEUCADIA NATIONAL||Richard B. Handler||88%||$17,583,374|
|77||CARMAX||William D. Nash||88%||$6,538,392|
|78||DOW CHEMICAL||Andrew N. Liveris||88%||$22,963,059|
|79||SIMON PROPERTY GROUP||David Simon||88%||$13,238,074|
|80||MACERICH||Arthur M. Coppola||89%||$13,537,911|
|81||CENTENE||Michael F. Neidorff||89%||$21,968,983|
|82||F5 NETWORKS||John McAdam||89%||$4,792,978|
|83||MICHAEL KORS HOLDINGS||John D. Idol||89%||$8,590,295|
|84||CARNIVAL||Arnold W. Donald||89%||$9,881,820|
|85||GENERAL ELECTRIC||Jeffrey Immelt||89%||$21,324,524|
|86||EVERSOURCE ENERGY||James J. Judge||89%||$6,183,262|
|87||C R BARD||Timothy Ring||89%||$12,626,500|
|88||PUBLIC SERVICE ENTERPRISE GROUP||Ralph Izzo||90%||$9,867,979|
|89||DR PEPPER SNAPPLE GROUP||Larry Young||90%||$9,931,630|
|90||YUM! BRANDS||Greg Creed||90%||$15,380,682|
|91||NEWS||Robert J. Thomson||90%||$11,336,883|
|92||BLACKROCK||Laurence D. Fink||90%||$25,472,831|
|93||PIONEER NATURAL RESOURCES||Scott Douglas Sheffield||90%||$15,003,350|
|94||MORGAN STANLEY||James P. Gorman||90%||$21,205,835|
|95||LOEWS||James S. Tisch||90%||$5,993,409|
|96||EQUITY RESIDENTIAL REIT||David J. Neithercut||90%||$8,673,704|
|97||CH ROBINSON WORLDWIDE||John P. Wiehoff||91%||$6,321,399|
|100||ANADARKO PETROLEUM||R. A. Walker||91%||$18,650,252|
C–HIP INVESTOR REGRESSION ANALYSIS
This table shows the 100 Most Overpaid, as calculated by just the HIP Investor regression analysis.
Although we, like many other analysts, find weak links between pay and performance, the usual justification claimed for high executive pay is that they are connected to profits and capital appreciation for the shareholders. We grant the assumption that pay should be determined by performance, and then use a basic statistical technique to map actual performance outcomes to predicted levels of pay. This prediction is compared to actual pay, to see how much the package exceeded such a prediction. Those with highest excess are ranked in the table below.
Executive pay data series included:
• Raw data: Simply looking at every ISS-identified executive’s pay package, in each year, as a single data point to be paired with performance for that year.
• CEO Pay, all years: The raw data is filtered based on ISS identification of the CEO, we adjusted Alphabet manually to make sure the CEO of Google (Sundar Pichai) is listed instead of Larry Page the CEO of Alphabet who only gets nominal pay. The series is supplemented using a Thomson Reuters Asset4 data set that captures the single largest pay package for each (company, year) pair. If ISS did not report a CEO for a given pair, and that pair was available in the Asset4 series, the Asset4 data was included. Where ISS identifies multiple co-CEOs, their pay packages are added together. Once the full set of pay packages is assembled, each (company, year) value is paired with the performance for that year, and this full set is used for the regression.
• CEO Pay, most recent available: Rather than using all (company, year) pairs, only the most recent available CEO pay package is used, along with performance trailing from that year.
• Summed: Aggregating all money paid out to ISS-identified executives for the year.
• Averaged: Dividing the previous summed data point by the number of distinct executives for the year.
Each type of executive pay could be reported in any year from 2007-2017, though not every company was reported for every year.
Financial performance series included:
• Return On Invested Capital (cash flow available to pay both debt and equity capital owners, adjusted for tax effects, divided by the total value of that capital). ROIC is sourced from Thomson Reuters WorldScope, which sources data from companies’ annual reports and investor filings.
• Total Return (capital gains and dividends) on the company’s primary equity. This is calculated from the ThomsonReuters DataStream Return Index series, using trailing periods behind June 30 of the year of the pay package as identified by ISS (or matching the year for the supplementary largest package data from Asset4). Both performance factors were calculated across one-year, three-year, and five-year windows, trailing behind each possible pay year.
|Rank||Name||Regression Prediction||CEO Pay Value||Excess relative to Regression||Excess relative to Regression %|
|5||ESTEE LAUDER COSMETICS||$15,227,370||$48,369,401||$33,142,031||218%|
|6||JOHNSON CONTROLS INTERNATIONAL PLC||$18,112,552||$46,396,770||$28,284,218||156%|
|10||SCRIPPS NETWORKS INTACT.||$10,275,022||$28,784,239||$18,509,217||180%|
|17||WILLIS TOWERS WATSON||$14,974,645||$28,846,121||$13,871,476||93%|
|18||INTERNATIONAL BUSINESS MACHINES||$19,020,646||$32,695,699||$13,675,053||72%|
|21||TWENTY-FIRST CENTURY FOX CL.A||$13,731,692||$26,379,673||$12,647,981||92%|
|31||JOHNSON & JOHNSON||$17,200,789||$26,871,720||$9,670,931||56%|
|33||SL GREEN REALTY||$8,022,613||$17,326,371||$9,303,758||116%|
|36||JP MORGAN CHASE & CO.||$18,529,258||$27,236,892||$8,707,634||47%|
|37||HEWLETT PACKARD ENTER.||$26,936,758||$35,564,351||$8,627,593||32%|
|62||MERCK & COMPANY||$15,954,248||$21,781,170||$5,826,922||37%|
|63||ALEXANDRIA REAL ESTATE EQUITIES INC||$5,592,241||$11,307,499||$5,715,258||102%|
|69||GOLDMAN SACHS GP.||$14,761,245||$20,206,898||$5,445,653||37%|
|74||CABOT OIL & GAS||$6,801,057||$11,311,837||$4,510,780||66%|
|88||LEVEL 3 COMMS.||$12,880,789||$16,739,111||$3,858,322||30%|
|90||FEDERAL REALTY INV.TST.||$5,760,180||$9,496,740||$3,736,560||65%|
|91||GOODYEAR TIRE & RUB.||$16,069,203||$19,798,104||$3,728,901||23%|
|95||BANK OF NEW YORK MELLON||$15,554,258||$19,165,598||$3,611,340||23%|
|98||UNIVERSAL HEALTH SVS.||$16,441,138||$19,867,748||$3,426,610||21%|
D – Opposition for Say-on-Pay Resolutions at Mutual Fund Families
This table summarizes over 100 mutual fund families on their CEO pay votes at all S&P 500 companies and the 100 companies with the most overpaid CEOs.
In order not to overweight votes on securities held more widely across a fund family compared to those held by only a few funds, each vote is recorded only once across a fund family. The ‘effective unique vote’ with respect to a specific resolution is the vote cast by at least 75% of funds across the entire fund family. In most instances, all funds across a fund family will vote identically. The 75% threshold is applied in cases where one or more funds within a family of funds vote inconsistently. Fund Votes’ Jackie Cook believes that the effective unique vote count method provides the most accurate method of analyzing a fund group’s position.
Where the 75% consensus threshold is not met, a ‘Mixed Vote’ is assigned and not counted as contributing to that fund’s overall level of support for Say-on-Pay resolutions included in the survey.
|Fund Family||AUM||Votes Against Lowest 100||Votes Against S&P 500|
|AMERICAN FUNDS/CAPITAL GROUP||1700||26%||9%|
|BOSTON TRUST & WALDEN FUNDS||3||67%||21%|
|CGCM FUNDS (MORGAN STANLEY)||447||11%||3%|
|EXCHANGE TRADED CONCEPTS||2.6||41%||12%|
|FIDELITY (STRATEGIC ADVISERS)||61.6||17%||5%|
|GOTHAM ASSET MANAGEMENT (FUNDVANTAGE)||18||40%||12%|
|JOHN HANCOCK - ETF||140||56%||18%|
|LATTICE STRATEGIES (BNY Mellon)||1700||39%||23%|
|MUTUAL OF AMERICA||15.7||36%||10%|
|NEW COVENANT FUNDS||0.4||41%||13%|
|PACIFIC (PACIFIC LIFE)||19||11%||2%|
|STATE STREET (ELFUN)||NA||18%||6%|
|TRILLIUM (PORTFOLIO 21)||2.2||100%||100%|
|Ultimus Fund Solutions||NA||17%||4%|
|US BANCORP FUND SERVICES||941||17%||4%|
|WADDELL & REED||80.5||0%||0%|
|WISDOMTREE (BNY Mellon)||1700||48%||27%|
E – OPPOSITION FOR SAY-ON-PAY RESOLUTIONS AT PENSION AND OTHER FUNDS
Data provided by ProxyInsight. Analysis by Jackie Cook
|Fund||AUM||Percentage Against 100 Lowest||Percent Against S & P 500|
|Pennsylvania State Employees' Retirement System (SERS)||$28.9 bn||0%||0%|
|TIAA-CREF Asset Management LLC||$220.9 bn||9%||3%|
|Indiana Public Retirement System (Multi-Managed)||$32.0 bn||44%||4%|
|Employees Retirement System of Texas||$25.6 bn||34%||9%|
|State Teachers' Retirement System of Ohio||$69.6 bn||35%||9%|
|Teacher Retirement System of Texas||$125.3 bn||33%||9%|
|Maryland State Retirement and Pension System||$43.7 bn||35%||9%|
|Illinois Municipal Retirement Fund||$33.4 bn||33%||10%|
|Virginia Retirement System||$67.8 bn||75%||10%|
|University of California||$110 bn||38%||10%|
|Los Angeles County Employees Retirement Association (LACERA)||$45.9 bn||35%||10%|
|North Carolina Department of State Treasurer||$89.8 bn||38%||11%|
|Oregon Investment Council||$95.3 bn||41%||12%|
|Pennsylvania Public School Employees' Retirement System (PSERS)||$47.6 bn||33%||12%|
|Caisse de dépôt et placement du Québec||$208.0 bn||49%||12%|
|Los Angeles Fire & Police Pensions||$18.1 bn||41%||12%|
|United Church Funds||$0.8 bn||42%||12%|
|State Universities Retirement System of Illinois (SURS)||$18.0 bn||41%||12%|
|Colorado Pension (PERA)||$44.0 bn||40%||12%|
|Illinois State Board of Investment||$15.4 bn||41%||13%|
|Washington State Investment Board (WSIB)||$116.5 bn||36%||13%|
|Tennessee Consolidated Retirement System (TCRS)||$32.0 bn||41%||14%|
|Ontario Teachers' Pension Plan (OTPP)||$141.7 bn||37%||14%|
|California Public Employees' Retirement System (CalPERS)||$323.5 bn||53%||17%|
|California State Teachers' Retirement System (CalSTRS)||$221.7 bn||54%||17%|
|Colorado Fire & Police Pension Association (FPPA)||$2.2 bn||51%||22%|
|The New York State Common Retirement Fund||$192.4 bn||56%||22%|
|Massachusetts Pension Reserves Investment Management (PRIM)||$66.8 bn||53%||22%|
|State of Wisconsin Investment Board (SWIB)||$99.1 bn||63%||25%|
|New York City Pension Funds||$158.0 bn||67%||26%|
|Ohio Public Employees Retirement System (OPERS)||$86.3 bn||61%||27%|
|British Columbia Investment Management Corporation (bcIMC)||$101.7 bn||71%||38%|
|Florida State Board of Administration||$191.5 bn||73%||41%|
|Amalgamated Bank||17.8 bn||57%||43%|
|Minnesota State Board of Investment||$89.5 bn||99%||63%|
|Alberta Investment Management Corporation (AIMco)||$95.7 bn||71%||65%|
|Northern Ireland Local Government Officers Superannuation Committee (NILGOSC)||$7.3 bn||N/A||94%|
F - MOST OVERPAID CEOS UNDER-PERFORM FINANCIALLY
By HIP Investor (Onindo Khan and R.Paul Herman)
Large companies continue to boost CEO pay, to levels that are 300x the average worker. The most overpaid CEOs collect more than 1000 times the average worker pay. While defenders of high CEO pay contend that the rewards are for increased shareholder value, the truth is clear: shareholders of companies with most overpaid CEOs typically underperform the stock market.
The first edition of As You Sow’s Most Overpaid CEOs report, published in 2015, identified the 100 leaders of firms significantly overpaying their chief executives. Advocates of high CEO pay contend that pay was high at these companies as a reward for high shareholder returns. However, as seen in Figure 1, the average annual total shareholder returns in the 3 years prior (2/28/2012 to 2/28/2015) to a high pay package was essentially the same as it was at companies without the same levels of excess pay. Then, in the nearly 3 years since (2/28/2015 to 1/1/2018), the group of companies with the most overpaid CEOs underperformed the S&P500. If savvy investors sold, shorted or underweighted the100 most overpaid firms, they would have earned more than the stock market average.
When we look at the quantitative evidence, pay for performance is basically a myth.
Our HIP Investor team analyzed multiple financial indicators over different timeframes for all S&P500 companies and consistently found extremely low correlations (single digit correlation coefficients) between CEO pay and historical financial performance – whether 1-, 3- or 5-year performance for financial ratios including Return on Equity (ROE), Return on Invested Capital (ROIC), and Total Shareholder Return(TSR) including capital gains and reinvested dividends.
Unbundling the most overpaid 100 into the worst decile of 10 firms, the remainder of the worst quartile, and the remaining three quartiles, most segments underperformed the S&P500 market average. Again, this year, the worst 10 firms with massively overpaid CEOs destroyed shareholder value, losing money for investors – and dramatically lagging the market by an embarrassingly negative -15.6%. – and this even in one of the longest bull markets in history.
Surprisingly this year, the segment of companies in the second-worst quartile (ranked 26 to 50) in our 2015 report did outperform the S&P500. Three companies are major contributors to that outperformance, with annualized 3-year returns above 20% per year. Three firms -- Northrop Grumman, Lockheed and Visa – dramatically reduced the level of CEO pay since 2015. In Figure 3, you can see the rank of Overpaid CEOs drop by 65, 93, and more than 145 ranked positions – meaning, they improved by falling lower on the most overpaid list. Corporations and boards are starting to react to mounting pressure and empirical validation of more sensible pay for CEOs.
Figure 3: EXAMPLES OF REDUCED CEO PAY
CORRELATE WITH HIGHER FINANCIAL RETURNS
Rank on Most Overpaid CEOs, and Annualized Total Shareholder Return
Company 2015 rank 2018 rank 3-yr* TSR as of 06/30/2017
Northrop 50 143 + 26.3 %
Lockheed 32 97 + 21.4 %
Visa 37 182 + 20.9 %
For consistency of the Most Overpaid 100 methodology, HIP Investor also analyzed the 2-year performance from the 2016 report until 12/31/2017, as seen in Figure 4, with similar results: the most overpaid CEOs underperform financially.
While the worst decile lagged the market by 7.6%, the firms ranked 11 to 25 under-performed by 10.5%
Are Overpaid CEOs a reliable indicator of financial under-performance? The evidence is compelling. Such disappointing returns are extremely unlikely. If 10,000 everyday investors chose 10 companies randomly from the S&P 500, only 8 of that 10,000 would have done worse than a portfolio comprised of the Top10 overpaid (a less than 1 in 1,000 frequency). This clearly shows that overpaying your CEO is a significant indicator for future underperformance – which we have focused on at HIP Investor since our founding in 2006.
Your portfolio is your money. The companies and funds you invest in should be listening to you. However, the most overpaid CEO pay packages are approved by Boards, elected by you the investor, and the mutual funds who hold their stocks. We encourage you as investors to speak up, vote your “say on pay,” and pressure the companies and funds in your portfolio with this evidence – which can benefit your long-term financial performance and a more appropriate level of rewards for results achieved.
1 Proxy Insight, "Retaking the Wheel: ISS auto-voters take action to become even more passive," Proxy Monthly Volume 4, Issue 5 (July 2017) 6-7.
This report was made possible by the generous support of the Stephen Silberstein Foundation. Additional support was provided by the Arntz Family Foundation, The Keith Campbell Foundation for the Environment, Firedoll Foundation, Hanley Foundation, The Libra Foundation, Manaaki Foundation, New Belgium Family Foundation, Roddenberry Foundation, Roy and Patricia Disney Family Foundation, and Singing Field Foundation.
Special thanks to:
- Many components of this report, including the section on pension funds, were based on data provided by ProxyInsight. The website was invaluable and Seth Duppstadt and Sophia Miles were prompt and patient with answering specific questions.
- The HIP Investor team conducted a regression analysis, upon which a key component of this report rests, and provided measures used in the sustainability section of the report. HIP, founded in 2006, rates 75,000 investments on all aspects of sustainability (including corporate CEO pay) and how it correlates to future risk and return potential. Onindo Khan, Director, Impact Analytics and R. Paul Herman, HIP’s CEO and founder, were extraordinarily helpful and responsive throughout the process.
- Much of the mutual fund section of the report was based on data provided by Fund Votes, an independent project started in 2004 by Jackie Cook (CookESG Research). Fund Votes tracks institutional proxy voting and Jackie Cook’s knowledge of mutual fund families and voting practices has been of great assistance.
- Economist Susan Holmberg served as a research consultant on this project. Her thoroughness and attention to detail were extremely valuable.
- Steven Clifford, for his fantastic book, “The CEO Pay Machine: How it Trashes America and How to Stop It,” and for participating in our webinar.
- The As You Sow team; (alphabetically) Andrew Behar, Betsy McMahon, Cody Mitcheltree, Cyrus Nemati, and Zoey Olbum as well as our interns. Thanks also to digital designer Sarah Weingust, copy editor Miriam Holzman-Sharman, John Opet of Art270, and Royce Wells of Comrade agency for his work on website creation.
The aggregated information comprising The Most Overpaid CEOs 2018 represents a snapshot in time of publicly available information regarding shareholder voting with U.S. public companies that may be on the proxy statements and voted on at annual general meetings in 2017.
The information provided in The Most Overpaid CEOs 2018 is provided “AS IS” without warranty of any kind. As You Sow makes no representations and provides no warranties regarding any information or opinions provided herein, including, but not limited to, the advisability of investing in any particular company or investment fund or other vehicle. While we have obtained information believed to be objectively reliable, As You Sow or any of its employees, officers, directors, trustees, or agents, shall not be responsible or liable, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with use of or reliance on any information contained herein, including, but not limited to, lost profits or punitive or consequential damages. Past performance is not indicative of future returns.
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