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July 22, 2010
Mutual Funds Continue to Support Management on Executive Compensation
    by Robert Kropp

A new report finds that although withholding votes from directors over compensation issues has increased, support by mutual funds for management proposals on compensation issues was 84% in 2008.

Although research from The Corporate Library indicates that large increases in executive compensation correlates poorly with corporate governance, mutual funds continue to support the position of management on the issue to an overwhelming extent, according to a report entitled Compensation Accomplices: Mutual Funds and the Overpaid American CEO.

The third in an annual series, the 53-page report was prepared by the
American Federation of State, County and Municipal Employees (AFSCME), The Corporate Library, and the Shareowner Education Network (SEN). The report focuses on the voting patterns of mutual funds on executive compensation proposals in 2007 and 2008.

The report found that support by mutual funds for management proposals on compensation issues was 84% in 2008. Of the funds analyzed in the report, the worst offenders were AllianceBernstein, Ameriprise Financial, Barclays Global Investors, and Columbia Management. AllianceBernstein supported management more than 90% of the time, while its support for shareowner proposals decreased to two percent.

AFSCME International President Gerald W. McEntee stated, "Given the performance of many companies, investors in mutual funds should be outraged that their assets are being used to prop up CEO pay that is too often undeserved and unearned."

The mutual funds that most often supported shareowner proposals on the issue were Templeton, T. Rowe Price, and Schwab, with an average vote of 78% in favor of such proposals. The report also found that the average level of withheld support from directors over compensation issues increased to 52% in 2008.

The report recommends that retail investors take the time to "critically evaluate how their mutual funds vote on pay issues and hold those funds accountable." It suggests that retail investors utilize such resources as
ProxyDemocracy to aid in their research.

The report further recommends that investors "consider shifting their investments from fund families whose voting practices and records are not responsible to fund families with more responsible practices and records."

ProxyDemocracy ranks the most activist funds on issues such as executive compensation, and a visit to the site reveals that several of the best performing funds on the issue are sustainable funds. Top performers include the
Green Century Equity Fund, Trillium Asset Management, and the Domini Social Equity Fund.


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