CalSTRS Analysis of 2011 Say-on-Pay Proxy Voting Available Online
CalSTRS Corporate Governance offers a lessons learned analysis for the first year of mandatory say-on-pay for most U.S. Corporations

News release Ricardo Duran

WEST SACRAMENTO, CA – 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.

“We want to make clear to our portfolio companies that our goal is to create the conditions that will support long-term shareholder value, which in turn, supports the financial futures of California’s educators and their families,” said CalSTRS Director of Corporate Governance Anne Sheehan.

Of the 2,166 say-on-pay proposals from the beginning of January through the end of June 2011, CalSTRS voted “for” nearly 77 percent and “against” 23 percent of the time. The overwhelming reason for CalSTRS “against” votes was the continued disconnect between company performance and executive compensation.

“Executives whose compensation is fundamentally linked to company performance will do all they can to foster consistent and sustainable outperformance. This aligns well with our goal as a long-term investor,” Sheehan said.

In looking ahead to the 2012 proxy season, the analysis discussed continued challenges investors may face, including the complexity of proxy statements, the use of peer group comparisons as a way to target compensation and the use of total summary compensation tables instead of actual take-home compensation for executives when shareholders consider voting the proxy ballot.

CalSTRS has been vigorously engaged in corporate governance issues for more than 20 years and executive compensation remains a centerpiece of that effort.

The California State Teachers’ Retirement System, with a portfolio valued at $144.8 billion as of December 31, 2011, is the largest teacher pension fund and second largest public pension fund in the United States. CalSTRS administers a hybrid retirement system, consisting of a traditional defined benefit, cash balance and defined contribution plan, as well as disability and survivor benefits. CalSTRS serves California’s 856,000 public school educators and their families from the state’s 1,600 school districts, county offices of education and community college districts.