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Dozens of big EU-based fund houses have stepped up their opposition against US companies over executive pay this year, turning up the heat on corporate America over large and unwarranted bonuses.
In an acceleration of long-running investor campaigns on pay in Europe, asset managers including Allianz Global Investors, Aviva Investors, Schroders and Legal & General Investment Management voted against management on pay resolutions at more US annual general meetings in the year to June 2017 compared with the previous year, according to figures from Proxy Insight, the data provider.
European investors have previously been vocal about pay in countries such as the UK, where they have led rebellions at companies ranging from Burberry, the luxury retailer, to supermarket chain Morrisons.
Paul Lee, head of corporate governance at Aberdeen Standard Investment, the fund house created through the merger of Standard Life and Aberdeen in August, said some US pay practices were “troubling”.
“One of my frustrations from a global perspective is we spend a long time talking about pay in the UK, but the real problem with pay is in North America.”
Mr Lee said his concerns in the US include executives being awarded big bonuses when companies underperform peers. Another issue is that some companies begin paying out long-term bonus schemes, which are meant to reward individuals for long-term performance, after just one year. “These should not be dignified with the term long term,” he said.
Margriet Stavast, adviser for responsible investment at PGGM, the Dutch pension fund that has a strong record of voting against pay in the US, said both the level and structure of pay in the US was concerning.
“We believe executive pay in the US is simply too high and too complex. We vote against the majority of the pay packages,” she said.
PGGM backed just 4 per cent of so-called say-on-pay resolutions, where shareholders vote on the remuneration of executives, in the US last year, according to Proxy Insight. Aberdeen voted for 17 per cent of these resolutions, compared with almost 37 per cent in 2016, while Allianz Global Investors supported just under 32 per cent, down from 90 per cent.
Despite the increased protests over pay in the US by European investors, many large US asset managers have not been as vocal. BlackRock, Vanguard and State Street Global Advisors, US-based fund houses that are the world’s three largest asset managers, backed at least 93 per cent of say-on-pay resolutions in the US in the year to June 2017.
One senior official at a large European asset manager said: “Clearly European investors are stricter on pay. These sorts of structures [of paying bonuses when companies are underperforming] would not persist in the US if the bulk of institutional investors said they were unacceptable.”
According to Proxy Insight, this year only 34 say-on-pay votes failed out of 2,830 it examined in the US.
Notable protests included ConocoPhillips, the oil group, where two-thirds of shareholders rejected the advisory pay vote, and Oracle, the business software company, and SeaWorld, the theme park owner, where more than half of investors did not back the resolution. Investors have also voted against the say-on-pay resolution at Bed Bath & Beyond, the retailer, for three years in a row.
Eugenia Unanyants-Jackson, global head of environmental, social and governance research at Allianz Global Investors, which has about €500bn under management, said US chief executives often get paid for just being in the job, rather than for performance.
“When we look at remuneration structures in UK or in some European markets, there is a much closer link between strategy and payouts, compared with US companies,” she said. “We support variable remuneration, but we think it should only be paid if robust targets are made.”