During fiscal year 2014-15, CalSTRS staff voted on 25,404 proposals at 3,083 meetings held for 2,940 companies in the domestic Public Equity portfolio. The proposals covered a variety of topics: the election of directors, the ratification of company auditors, the approval of executive and director compensation plans and the approval of mergers and acquisitions.
Staff also voted on a variety of shareholder proposals covering multiple environmental, social and governance (ESG) issues, such as sustainability, political contributions, majority vote standard for director elections and proxy access. In fact, proxy access was a dominant issue in 2014-15 as staff voted 87 proxy access proposals in 2014-15 compared to 16 in 2013-14.
Proxy access proposals accounted for approximately 28 percent of the governance proposals voted in 2014-15 compared to 6 percent in 2013-14.
The 25,404 proposals voted on by staff during fiscal year 2014-15 were a 1.2 percent decrease from the 25,715 proposals voted on in 2013-14.
The domestic voting levels have remained fairly consistent over the years until 2010-11, when the Dodd-Frank Act was implemented, requiring all public companies to hold a say-on-pay vote at least once every three years.
The following chart shows the total number of proposals considered by staff over the past seven years. As depicted in the chart, the number of proposals voted in 2010-11 increased due to the mandatory inclusion of the advisory vote on compensation (say-on-pay) and frequency of advisory vote (say-when-on-pay) proposals. The rule allowed a two-year exemption for smaller reporting companies, which explained why the number of proposals voted on was relatively consistent for the first three proxy seasons following the implementation of the Dodd-Frank Act. After that, fewer companies appeared to hold the say-when-on-pay vote since it is only required every six years thereafter.
The following chart shows how staff has voted over the past seven years on the following issues: 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 2014-15 remains relatively unchanged compared to that in 2013-14 after rising steadily over the previous years. A similar observation can be seen regarding the number of auditor ratification proposals.
Many companies continue to put the corporate auditor on the proxy for ratification by shareholders because it is considered a “best practice”. Also, since the Securities and Exchange Commission approved the elimination of the broker voting in director elections, companies can ensure the necessary quorum is achieved at their annual meeting by putting the auditor ratification proposal to a shareholder vote.
As for the number of compensation plan proposals, it has remained relatively steady over the past few years after peaking in 2008-09 when companies were possibly 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 2014-15, CalSTRS staff voted “For” approximately 72 percent of all proposals considered, which is consistent with the support level of 71 percent in 2013-14. In the past four years, the support level has been slightly higher than 70 percent, which is substantially higher than the 55 percent support level in 2008-09.
A number of things have attributed to the significant increase in the support level since 2008-09. Staff has increased its efforts in engaging companies believed to have excessive or misaligned executive compensation practices and 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.
The introduction of the mandatory say-on-pay votes in 2011 also increased the number of “For” votes as staff has tended to support the majority of these proposals.
2014-15 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: 17,531
- Voted For: 11,870 (68%)
- Voted Against: 5,661 (32%)
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: 2,800
- Voted For: 2,567 (92%)
- Voted Against: 233 (8%)
(Stock option plans, equity compensation 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: 1,263
- Voted For: 1,045 (83%)
- Voted Against: 218 (17%)
Advisory Vote on Compensation
- Number Voted: 2,201
- Voted For: 1,849 (84%)
- Voted Against: 352 (16%)
CalSTRS votes on acquisitions or mergers are done on a case-by-case basis utilizing a total portfolio view.
- Number Voted: 160
- Voted For: 158 (99%)
- Voted Against: 2 (1%)
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: 488
- Voted For: 322 (66%)
- Voted Against: 166 (34%)
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: 222
- Voted For: 2 (1%)
- Voted Against: 220 (99%)
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 1, 2 or 3 years. CalSTRS generally supports having an annual say-on-pay vote.
- Number Voted: 105
- 1 year: 105 (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 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 vs. Against)||49%||51%||52%||48%||58%||42%||64%||36%||66%||34%||66%||34%||68%||32%|
|(For vs. Against)||89%||11%||91%||9%||91%||9%||91%||9%||91%||9%||91%||9%||92%||8%|
|Comp. Plan Votes||1,645||1,386||1,264||1,313||1,320||1,273||1,263|
|(For vs. Against)||39%||61%||40%||60%||49%||51%||81%||19%||82%||18%||82%||18%||83%||17%|
|Advisory Vote on Compensation||2,350||2,466||2,494||2,533||2,201|
|(For vs. Against)||77%||23%||83%||17%||86%||14%||83%||17%||84%||16%|
|(For vs. Against)||83%||17%||81%||19%||93%||7%||91%||9%||96%||4%||98%||2%||99%||1%|
|Corporate Action Votes||991||1,015||627||641||806||524||488|
|(For vs. Against)||71%||29%||64%||36%||67%||33%||73%||27%||75%||25%||72%||28%||66%||34%|
|(For vs. Against)||36%||64%||22%||78%||47%||53%||48%||52%||51%||49%||15%||85%||1%||99%|
Several trends can be identified from the data presented above.
- The level of support for the incumbent directors remained relatively the same as the previous fiscal year after steadily increasing over the years. 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 the fewer withhold director votes since 2011.
- It appears companies continued 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 the say-on-pay votes remained relatively unchanged for this fiscal year compared to 2013-14, however, it appeared that fewer companies had the say-on-pay votes. This can be attributed to companies that do not have to provide the say-on-pay votes on an annual basis, but instead on a triennial basis.
- The support level for the compensation plans continued to be high as the previous years. As mentioned previously, 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’s compensation program, resulting in staff being more inclined to support it at the company’s next annual meeting.
- There were more merger and acquisition votes in 2014-15 than in 2013-14, particularly in the technology and healthcare sectors. The support level for the merger votes was very high because almost all of deals are immediately accretive due to the prolonged historically low-interest rate environment.
- Corporate action votes slightly decreased in fiscal year 2014-15 compared to 2013-14. 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, which were up for a shareholder vote and passed over this past year.
- The miscellaneous votes had a substantially higher “Against” votes in 2014-15 than in 2013-14. The reason being that unlike the previous years, the miscellaneous votes from this fiscal year consisted primarily of the following: the right to adjourn a meeting and the right to transact other business at the annual meeting. Both proposals warranted an “Against” vote based on .