CalSTRS introduced their report on executive pay last week. It was notable for a couple reasons. First, the large retirement fund acknowledges that questionable pay practices are on the decline although there still is room for improvement in their opinion. From their press release:
“The California State Teachers’ Retirement System (CalSTRS) released, “Lessons Learned: The Inaugural Year of Say-on-Pay,” its analysis of shareholders’ ability to vote on executive compensation, known as say-on-pay, during the 2011 proxy season. The analysis provides key findings from the first year with mandatory say-on-pay. The document notes that some questionable practices are on the decline, such as companies paying taxes on executives’ use of perquisites, and excessive perquisites themselves. However, the analysis also discusses CalSTRS’ primary reasons for voting against say-on-pay proposals and identifies areas where many companies can improve. Among these findings, are:
- Persistent disconnect between executive pay and company performance was CalSTRS’ overwhelming reason for “against” votes.
- Continued board use of broad discretion in developing compensation policies remains problematic.
- Appropriate peer group selection continues to be a challenge.”
A second notable comment comes from the report itself: “Given the unique nature of compensation, CalSTRS tried to evaluate pay holistically at every company.” This is good news. It is another example of a large investor looking at governance matters at public companies on an individual basis rather than relying on the black box models used at proxy advisory firms. This judgment is welcome as no two situations are the same. Good corporate governance demands that institutional investors make judgments about their investments’ corporate governance in context. Hopefully more investors will follow this route in the future.
— Steve Odland