Domestic Proxy Votes
In 2016-17, staff voted on 26,488 proposals at 2,963 meetings held by companies in the domestic public equity portfolio. Compared to 2015-16, the number of proposals and meetings was 5.6 percent higher and 1.6 percent lower, respectively.
The following table shows the number of proposals considered on major issues in fiscal years 2015-16 and 2016-17 and the percentage change year over year. The number of director elections, auditor ratifications and compensation plans considered remained fairly consistent year over year.
In 2016-17, the number of say-on-pay votes increased by more than 9 percent, which is likely attributable to more U.S. companies with triennial say-on-pay frequency having to put up their say-on-pay vote this year.
|Issue||2015-16 Proposals Considered||2016-17 Proposals Considered||2015-16 to 2016-17 Change|
|Election of Directors||17,347||17,209||(0.8%)|
|Ratification of Auditor||2,749||2,669||(2.9%)|
|Equity Compensation Plan||1,291||1,283||(0.6%)|
Historical Proxy Voting of Certain Major Issues
|Mergers & Acquisitions||151||96%||4%||130||98%||2%||160||99%||1%||176||94%||6%||208||99%||1%|
As shown in the table above, the support level for incumbent directors was slightly higher compared to previous fiscal years as companies have increased their outreach or engagement efforts with us during the proxy off-season. Also, CalSTRS usually withholds from the directors on the compensation committee in instances where staff votes against the company’s equity compensation plan or say-on-pay vote.
Over the years, we have increased our engagement efforts with companies with a low support level for their equity compensation plans or say-on-pay votes. In some instances, our engagement efforts have resulted in the companies improving disclosure or modifying certain provisions to their executive compensation, which have led us to support the say-on-pay votes the following year.
The following chart highlights how CalSTRS voted on certain major shareholder issues in 2016-17.
There was a slight decrease in the year over year number for environment proposals that CalSTRS voted.
CalSTRS supported all environment proposals requesting companies to issue a sustainability report in 2016-17.
Overall, we supported more than 50 percent of environment proposals, which included issues related to climate change, greenhouse gas emission reduction and reporting, energy efficiency and renewables, and sustainability or environmental reporting.
Generally, CalSTRS supports environmental proposals at companies that have not demonstrated transparency and adequate environmental disclosure in their reporting or are not open to engaging with shareholders on environmental issues.
Social and Political Proposals
Overall, the number of social proposals that CalSTRS voted remained relatively unchanged from last fiscal year, and we supported approximately 50 percent of such proposals, which included proposals on political, diversity, animal welfare, EEO reporting, and others.
As for the political proposals, the number decreased slightly in 2016-17 compared to 2015-16.
Shareholders have been requesting more information on political spending and lobbying activities from companies since the Supreme Court decision Citizens United v. Federal Election Commission allowed independent political expenditures by corporations. In response, more companies have increased their disclosure of political and lobbying expenditures.
In 2016-17, CalSTRS supported approximately two-third (67 percent) of all political proposals considered.
Generally, CalSTRS supports political proposals at companies that do not demonstrate adequate board oversight of the company’s political contributions, charitable contributions and lobbying activities and expenses, and their policy is not readily accessible to shareholders.
In 2016-17, the number of traditional governance proposals that CalSTRS voted was less than last fiscal year. In fact, such proposals have decreased significantly since 2014-15, as shown in Table B.
Traditional governance proposals, such as independent chair, majority voting for director elections, the right to act by written consents and declassifying the board, were less in 2016-17 than in 2015-16.
The declining trend in these proposals may be due to the majority of the largely, established companies already adopting these best governance practices, and smaller companies being more open to voluntarily adopting these best governance practices as well.
As for compensation proposals, the number CalSTRS voted in 2016-17 was less than in 2015-16. Such a declining trend has continued since the introduction of mandatory say-on-pay vote in 2011.
For instance, in 2012-13, the number of compensation proposals restricting executive compensation was 79 while in 2016-17 it was only 16.
Companies receiving a low support level on their say-on-pay votes have been open to engaging with shareholders, therefore, compensation proposals may not be necessary means to get companies to improve their executive compensation.
Unsurprisingly, in 2016-17, we have seen an increase in the number of compensation proposals on race and/or gender pay equity reporting or reporting on the ratio between CEO and employee pay as investors have focused more on issues related to pay inequality.
Over the past few years, proxy access has been an important and dominant issue during the proxy season since the New York City Comptroller and the New York City pension funds launched the Boardroom Accountability Project in 2014.
Since then, more companies, mostly large established ones in the S&P 500 Index, have been accepting of proxy access and have voluntarily adopted these proposals. For that reason, the number of proxy access shareholder proposals considered was 33 percent less this fiscal year, compared to last fiscal year.
Proxy access proposals represented approximately 26 percent of the governance proposals we voted in 2016-17, which was less than the 32 percent in 2015-16.
In 2016-17, CalSTRS continued to support all 56 proxy access shareholder proposals modeled after the SEC’s original proxy access proposal, which allowed an investor or a group of investors holding an aggregate of three percent or more of the company’s shares for three or more years the right to nominate director candidates on the proxy.
CalSTRS is also a strong proponent of proxy access proposals allowing the nomination of two directors or 20 to 25 percent of the board.
The following chart summarizes the type and volume of the major shareholder proposals that CalSTRS voted on in 2016-17.