Aberdeen Standard Investments (ASI) – AUM $786 billion

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Aberdeen Standard voted against 33 percent of pay packages of the S&P 500 companies; it held just of the 19 of the companies with 100 most overpaid CEO pay packages, and voted against 57 percent of them.

One of the largest changes in levels of voting opposition occurred because of an August 2017 merger between Standard Life and Aberdeen Asset Management, forming a new firm renamed Aberdeen Standard Investments (ASI). As its own company, as covered in last year’s report, Standard Life, which had approximately $384 billion in AUM, opposed only 9.4 percent of CEO pay packages in the S&P 500 in 2017. As part of this merger a new ASI custom policy was implemented for 2018, which included “amended … parameters applied to remuneration votes in North America,” according to a Jan. 17, 2018 email to As You Sow from Mike Everett, ESG Investment Director for ASI.

The votes of the newly merged company are similar to those of Aberdeen in prior years, but now represent approximately twice as many shares, and are much improved over the previous votes by Standard Life.

ASI also issues quarterly Global ESG Investment reports, which cover broad topics as well as details of engagement with specific companies. In its Quarter 3 2018 report, ASI discussed how companies should respond to failed CEO pay advisory votes in the context of one particular engagement. “We are increasingly concerned that, where companies receive high levels of dissent on advisory votes on pay, the only solution offered is more engagement with shareholders…Engagement alone is not enough.” writes Governance and Stewardship Director Deborah Gilshan in that report.13

Allianz Global Investors (AllianzGI) – AUM $598 billion

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Allianz Global Investors voted against 75 percent of the pay packages of S&P 500 companies; it voted against 77 percent of the 100 most overpaid CEO pay packages, and it abstained on an additional 6 percent.14

AllianzGl Analyst Robbie Miles explained in a January 9, 2019 phone interview with As You Sow that, “We apply a corporate governance guideline globally.” The guidelines were completed with the engagement from the full staff, making used of the “thought, wisdom, and experience” of analysts from across the world. The process, according to Miles, was laborious, but left the firm with "confidence that we are representing the views of our fund investors."

"In the U.S. those guidelines are hard on remuneration, because we are taking the view that what is best at incentivizing a human being in Europe is probably what is best an incentivizing a human being in the U.S. or Asia as well," Miles said.

AllianzGl follows three primary beliefs regarding incentives:

Incentives should be truly long-term, not inspiring tactical moves to boost quarterly earnings but planning for sustainable growth. In other words, a 12-month performance period or immediate vesting may inspire votes against;

Incentives should be stretching. In many cases common metrics, targets, and thresholds are not suitably stretching. Stock options more often reflect changes in market than rewarding individual effort; and

Quantum of pay should be in line with peers and performance.

Miles notes that the plans are looked at holistically, with factors ranging from stock ownership guidelines and clawbacks also considered. The AllianzGl Global Proxy Voting Guidelines provide detailed information on the fund’s voting.15

ISS generally does the voting for Allianz using a custom policy that AllianzGl developed with them. If a certain ownership threshold is exceeded, a nine-person ESG team from AllianzGl does additional analysis before the vote is cast.

BlackRock – AUM $6.4 trillion

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BlackRock voted against 2.5 percent of pay packages of the S&P 500 companies; it voted against 12 percent of the 100 most overpaid CEO pay packages.

BlackRock's disclosure is substantially less useful than that of other funds. In "BlackRock Investment Stewardship Engagement Priorities for 2018," the fund says that it supports “compensation that promotes long-termism." In the paragraph that follows BlackRock mentions that it will "seek clarity," "we expect . . . justification," and "we may ask the board to explain."16

The explanations and justifications Blackrock receives from corporate representatives apparently satisfies it more than anyone else; Blackrock votes to approve more CEO pay packages than almost anyone else.

Pacific Investment Management Co. (PIMCO) – AUM $1.7 trillion

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PIMCO voted against 17.5 percent of pay packages of the S&P 500 companies; it voted against 50 percent of the 100 most overpaid CEO pay packages.

This level of opposition represents a significant improvement from 2017, when PIMCO voted against only 1 percent of both the S&P 500 and the 100 most overpaid CEOs.

PIMCO responded to our inquiries noting that the fund used sub-advisors, and proxy voting was done by Parametric Portfolio Associates (PPA).

Seattle–based PPA is an asset manager that works with institutional and individual investors. It also sub-advises a number of mutual funds. These are reported on the respective NP-X filings for each fund, including some for those of parent company Eaton Vance.

Jennifer Sireklove, PPA Director of Responsible Investing, told As You Sow that a new process and structure around proxy voting went into effect in February 2018. The emphasis on more active voting is "tied to our overall thinking on responsible investing." PPA plans to expand its disclosure on its website in the coming year.

State Street Global Advisors (SSGA) – AUM $2.7 trillion

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SSGA voted against 4 percent of pay packages of the S&P 500 companies and abstained on an additional 2.5 percent; it votedagainst 16 percent of the 100 most overpaid CEO pay packages, and abstained on an additional 6 percent.

SSGA uses its proxy voting guidelines and proprietary compensation screens to identify companies with which there are pay concerns. SSGA reports that screened companies are then "reviewed manually by the Asset Stewardship Team to reach a vote decision. The team reviews over 1,400 pay votes annually."

In April 2018, SSGA announced a policy change with a document titled, “Transparency in Pay Evaluation: Adoption of Abstain as a Vote Option on Management Compensation Resolutions.” This codified and explained its new policy of abstaining, rather than its previous policy of voting for, the CEO pay package that State Street had serious reservations about.17

Rakhi Kumar, head of SSGA's Investment Stewardship Team in a November 2018 interview told the Harvard Law School Forum on Corporate Governance and Financial Regulation that the level of "unqualified support for pay proposals has fallen in general. Overall unqualified support from a global perspective fell from 83 to 78 percent. In the U.S. there were 2,300 executive compensation votes—of that, 59 total votes (2.5 percent) were abstains compared to 139 votes 'against' (6 percent)."18

Unlike similar reports issued by peers, SSGAs 2017 Stewardship report names names and lists companies that have adopted specific reforms. For example, "VeriFone Systems, Inc., and Exelon Corporation acted to improve their compensation structure by eliminating upward discretion in payouts and placing a cap on long performance plan awards in the event of negative absolute total shareholder return (TSR)." SSGA also notes that total CEO compensation at Honeywell has been reduced over time, in part due to SSGA’s engagement.19

Vanguard – $4.8 trillion AUM

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Vanguard voted against 3.5 percent of pay packages of the S&P 500 companies; it voted against 14 percent of the 100 overpaid CEO pay packages.

This represents a small upward trend. Two years ago, Vanguard voted against only 1.3 percent of the S&P 500. Vanguard’s votes do not appear to represent the view of Vanguard's founder, recently deceased John Bogle, who wrote, "CEO compensation is seriously out of line, and too often has provided excessive and unreliable lottery-type rewards based on evanescent stock prices rather than durable intrinsic corporate value."20

In its Annual Stewardship Report, Vanguard did identify executive compensation as one of its four areas of concern, yet it rarely votes against CEO pay packages. According to the report, "We discussed executive compensation in about half our engagements. The alignment of pay with relative performance and the magnitude of total compensation were prominent themes in our discussions on this topic." The report goes on to describe seven specific engagements – without naming the companies involved – including two where the fund voted against the packages.

Vanguard, the report continued, "voted against 318 compensation committee members for failing to act on compensation matters in response to shareholder feedback."21