During fiscal year 2013-14, CalSTRS staff voted on 25,715 proposals at 3,062 meetings held for 2,930 companies in the domestic public equity portfolio.
The proposals covered a variety of topics:
- Election of directors.
- Ratification of company auditors.
- Approval of executive and director compensation plans.
- Approval of mergers and acquisitions.
Staff also voted on a variety of shareholder proposals covering multiple ESG issues such as:
- Sustainability issues.
- Political contributions or lobbying.
- Majority vote standard for director elections.
The 25,715 proposals voted on by staff during fiscal year 2013-14 were a six percent increase from the 27,366 proposals reported in 2012-13. Since 2007-08, the domestic voting levels remained fairly consistent until 2010-11 when the number of proposals increased due to the mandatory inclusion of advisory vote on compensation (Say-on-Pay) and frequency of advisory vote (Say-When-on-Pay) proposals.
The following chart shows the total number of proposals considered by staff over the past seven years.
The following chart displays certain major issues voted on by staff over the past seven years. These issues include the election of directors, the ratification of auditors and the approval of compensation plans.
As seen above, the number of individual directors up for election in fiscal year 2013-14 was less compared to 2012-13 after rising steadily over the years. A similar observation can be made concerning the number of proposals on the ratification of auditors.
Over the years, it has been considered a “best practice” to put the corporate auditor on the proxy for ratification by shareholders and, since the elimination of the broker voting in director elections, companies can ensure that the necessary annual meeting quorum requirements are met by putting the auditor ratification proposals to a shareholder vote.
Lastly, the number of compensation plan proposals has remained relatively steady over the past few years after peaking in 2008-09, possibly due to companies seeking adjustments to compensation plans after the market crash of 2008.
The aggregate amount of “For” and “Against” votes for each of the past seven years is depicted in the following chart.
During fiscal year 2013-14, CalSTRS staff voted “For” for approximately 71 percent of all proposals considered. This was consistent with the 2012-13 approval level of 72 percent.
The increase from the low of 55 percent approval in 2008-09 was attributable to an increase in the staff’s efforts in engaging companies believed to have excessive or misaligned executive compensation or companies that had compensation proposals that staff voted against in the previous years.
Also, after the proxy season in 2011, staff began utilizing a new and more holistic approach in analyzing and evaluating compensation plans, resulting in more support for these types of proposals.
Lastly, the introduction of the mandatory Say-on-Pay votes in 2011 increased the number of “For” votes as staff has tended to support the majority of these proposals.
2013-14 Proxy Year in Review
The major proxy issues voted on during this past fiscal year are summarized below.
Election of Directors
CalSTRS generally votes in favor of a director unless the proxy statement shows circumstances contrary to policy. Examples of such circumstances include: potential conflict of interest due to other directorships or employment, providing legal or investment banking advice and poor board meeting attendance (less than 75 percent).
- Number Voted: 17,546
- Voted For: 11,616 (66%)
- Voted Against: 5,930 (34%)
Selection of Auditors
CalSTRS will vote in favor of the independent auditors recommended by management unless the auditor provides services that run contrary to those indicated in CalSTRS’ policy. Examples of such services are: consulting, information system design and implementation, investment banking support and excessive non-audit fees (greater than 30 percent of the total fees billed).
- Number Voted: 2,776
- Voted For: 2,536 (91%)
- Voted Against: 240 (9%)
(Stock Option Plans, Employee Stock Purchase Plans, etc.)
Companies provide a variety of compensation plans for executives, employees and non-employee directors. Many of these plans provide for the issuance of long-term incentives to attract, reward and retain key employees. Compensation plans are evaluated based on .
- Number Voted: 1,273
- Voted For: 1,042 (82%)
- Voted Against: 231 (18%)
Advisory Vote on Compensation
More commonly known as Say-on-Pay, these periodic votes provide shareholders the opportunity to ratify the compensation of the executives named in the proxy. CalSTRS votes on these proposals on a case-by-case basis.
- Number Voted: 2,533
- Voted For: 2,114 (83%)
- Voted Against: 419 (17%)
CalSTRS’ votes on acquisitions or mergers are done on a case-by-case basis utilizing a total portfolio view.
- Number Voted: 130
- Voted For: 127 (98%)
- Voted Against: 3 (2%)
Corporate Actions/Corporate Governance Issues
These are issues related to spin-offs, incorporation, stock issuance, stock splits and charter and bylaw amendments. CalSTRS votes on these proposals on a case-by-case basis.
- Number Voted: 524
- Voted For: 378 (72%)
- Voted Against: 146 (28%)
Miscellaneous Issues – Management
The most common miscellaneous votes are requests to transact other business or the right to adjourn a meeting to solicit proxies. These issues are voted on a case-by-case basis.
- Number Voted: 237
- Voted For: 35 (15%)
- Voted Against: 202 (85%)
Frequency of Advisory Vote on Compensation
More commonly known as Say-When-on-Pay, this vote is a requirement of the Dodd-Frank Act to allow shareholders to vote on the frequency of future advisory votes on compensation. Under the rule, shareholders can choose to vote every one, two or three years. CalSTRS routinely supports having an annual Say-on-Pay vote.
- Number Voted: 120
- 1 year: 120 (100%)
- 2 year: 0 (0%)
- 3 year: 0 (0%)
Historical Proxy Analysis of Major Issues
Staff also looked at historical trends in the voting of these major issues over the last seven proxy years. The following table highlights the frequency of each proposal and the percentage of “For” and “Against” votes for each proposal type.
|(For / Against)||56%||44%||49%||51%||52%||48%||58%||42%||64%||36%||66%||34%||66%||34%|
|(For / Against)||88%||12%||89%||11%||91%||9%||91%||9%||91%||9%||91%||9%||91%||9%|
|Comp. Plan Votes||1,380||1,645||1,386||1,264||1,313||1,320||1,273|
|(For / Against)||37%||63%||39%||61%||40%||60%||49%||51%||81%||19%||82%||18%||82%||18%|
|(For / Against)||77%||23%||83%||17%||86%||14%||83%||17%|
|(For / Against)||85%||15%||83%||17%||81%||19%||93%||7%||91%||9%||96%||4%||98%||2%|
|Corporate Action Votes||1,237||991||1,015||627||641||806||524|
|(For / Against)||62%||38%||71%||29%||64%||36%||67%||36%||73%||27%||75%||25%||72%||28%|
|(For / Against)||21%||79%||36%||64%||22%||78%||47%||53%||48%||52%||51%||49%||15%||85%|
Several trends can be identified from the data presented above.
- The level of support for the incumbent directors remained the same as the previous fiscal year after steadily increasing since 2008-09. Usually staff withholds votes from the directors on the compensation committee in instances where CalSTRS votes against a compensation plan or the Say-on-Pay vote. Since the introduction of mandatory Say-on-Pay votes in 2011, companies have been very responsive in improving their compensation practices by engaging in shareholder outreach efforts; this may explain the fewer votes cast against the compensation plans as well as fewer withheld director votes since 2011.
- Fewer shareholder meetings were voted on in fiscal year 2013-14 compared to 2012-13 and there were also fewer individual directors up for election. This may be attributed to some companies scheduling their meetings later in the calendar year and some companies not holding their meetings in 2013 when they did so in 2012. It is also possible that companies held only annual meetings as opposed to both an annual and a special meeting.
- There was a decrease in the auditor votes, which may be due to the fewer shareholder meetings held in fiscal year 2013-14 compared to 2012-13. It appears companies continue to take auditor independence standards seriously as support for the auditor votes has consistently remained over 90 percent over for the past five fiscal years.
- The support level for Say-on-Pay votes decreased slightly this fiscal year compared to 2012-13, possibly due to the small cap companies presenting Say-on-Pay proposals for the first time and not having the opportunity to engage in any shareholder outreach efforts to benefit from shareholder feedbacks regarding certain negative aspects of the executive compensation plan.
- After the proxy season in 2011 and annually thereafter, staff has evaluated compensation plans utilizing a more holistic approach based on CalSTRS executive compensation principles. This has led to a higher support for the compensation plan votes since 2010-11. Additionally, during that same time period, staff has increased its efforts in engaging companies with excessive or misaligned executive compensation programs in order to seek change. The engagement efforts have frequently led to positive changes in some company compensation programs, resulting in staff being more inclined to support it at the company’s next annual meeting.
- Corporate action votes decreased in fiscal year 2013-14 compared to 2012-13. This may be the result of companies already adopting and implementing certain shareholder friendly resolutions, such as majority voting, board declassification and removal of supermajority provisions, that were up for a shareholder vote and passed over this past year.