During 2015-16, staff voted on 25,095 proposals at 3,012 meetings held for 2,874 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.
- The approval of mergers and acquisitions.
Staff also voted on a variety of shareholder proposals covering multiple Environmental, Social and Governance issues, such as:
- Political contributions.
- Majority vote standard for director elections.
- Proxy access.
Proxy access continued to be a dominant issue in 2015-16 as it was in 2014-15. This fiscal year, staff voted 84 proxy access proposals, which accounted for approximately 33 percent of the governance proposals voted in 2015-16 compared to 28 percent in 2014-15.
The 25,095 proposals voted on by staff during 2015-16 were a 1.2 percent decrease from the 25,404 proposals voted on in 2014-15. The domestic voting levels have generally remained fairly consistent over the years since 2010-11, when the Dodd-Frank Act was implemented, requiring all public companies to hold an advisory vote on executive compensation (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 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 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 2015-16 remains relatively unchanged compared to that in 2014-15 and 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 proposals to a shareholder vote.
As for the number of compensation plan proposals, it has remained relatively steady over the past few years, although it was higher in 2009-10 as 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 2015-16, staff voted “For” approximately 72 percent of all proposals considered, which is consistent with the support level since 2011-12.
In the past five years, the support level has been slightly higher than 70 percent, which is substantially higher than the 57 percent support level in 2009-10.
A number of things have attributed to the significant increase in the support level since 2009-10:
- Firstly, the staff has increased its 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.
- Secondly, 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.
2015-16 Proxy Year in Review
The major proxy issues voted on during 2015-16 for domestic proxies 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: a lack of board independence, 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: 17,347
- Voted For: 11,698 (67%)
- Voted Against: 5,649 (33%)
CalSTRS will vote to approve or ratify 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: 2,749
- Voted For: 2,522 (92%)
- Voted Against: 227 (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: 1,291
- Voted For: 1,045 (81%)
- Voted Against: 246 (19%)
Advisory Vote on Executive 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. These votes are evaluated based on CalSTRS Corporate Governance Principles.
- Number Voted: 2,102
- Voted For: 1,695 (81%)
- Voted Against: 407 (19%)
CalSTRS votes on mergers or acquisitions are done on a case-by-case basis using a total portfolio view.
- Number Voted: 176
- Voted For: 166 (94%)
- Voted Against: 10 (6%)
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: 541
- Voted For: 392 (72%)
- Voted Against: 149 (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: 217
- Voted For: 4 (2%)
- Voted Against: 213 (98%)
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 the advisory votes on executive 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: 113
- 1 year: 113 (100%)
- 2 year: 0 (0%)
- 3 year: 0 (0%)
Historical Proxy Analysis of Major Issues
Staff 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 percent of “For” and “Against” votes for each proposal type.
|(For vs. Against)||52%||48%||58%||42%||64%||36%||66%||34%||66%||34%||68%||32%||67%||33%|
|(For vs. Against)||91%||9%||91%||9%||91%||9%||91%||9%||92%||9%||92%||8%||92%||8%|
|Comp. Plan Votes||1,386||1,264||1,313||1,320||1,273||1,263||1,291|
|(For vs. Against)||40%||60%||49%||51%||81%||19%||82%||18%||82%||18%||83%||17%||81%||19%|
|Advisory Vote on Compensation||N/A||2,350||2,466||2,494||2,533||2,201||2,102|
|(For vs. Against)||77%||23%||83%||17%||86%||14%||83%||17%||84%||16%||81%||19%|
|(For vs. Against)||81%||19%||93%||7%||91%||9%||96%||4%||98%||2%||99%||1%||94%||6%|
|Corporate Action Votes||1,015||627||641||806||524||488||541|
|(For vs. Against)||64%||36%||67%||33%||73%||27%||75%||25%||72%||28%||66%||34%||72%||28%|
|(For vs. Against)||22%||78%||47%||53%||48%||52%||51%||49%||15%||85%||1%||99%||2%||98%|
Several trends can be identified from the data presented above:
- The level of support for the incumbent directors remained relatively the same as the past few fiscal years. Generally, staff withholds votes from the directors on the compensation committee in instances where staff 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. Over the years, staff has also increased its engagement efforts with companies with poor compensation practices. 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 seven fiscal years.
- The support level for the say-on-pay votes remained relatively unchanged since 2011-12. It also 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 fiscal years. 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 approximately 10 percent more merger and acquisition votes in 2015-16 than in 2014-15, with most of them occurring in the financial, technology and healthcare sectors.
- Corporate action votes slightly increased in 2015-16 compared to 2014-15, mostly due to companies seeking changes to their company statutes, such as amendments to the articles of incorporation, charters or bylaws, elimination of the supermajority requirement or the repeal of the classified board.
- As in 2014-15, the miscellaneous votes had substantially high “Against” votes in 2015-16. Since 2014-15, the miscellaneous votes 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 .