Wall Street Pay, Performance and Proxy Votes

Charles Skorina, who runs an executive search firm for investment professionals, recently issued a fascinating report recently entitled:  “Wall Street Pay and CEO Performance: Who Got Their Money’s Worth.” The report looked at CEO pay at money management firms, and then went a step further. Skorina created a Pay-to-Performance ratio by taking 2014 CEO compensation and dividing it by annualized total shareholder return for 2010-2014, and then ranked the companies. In his words, “In plain language, the ratio as we calculate it answers the shareholder’s question: how many millions in comp did I have to pay my CEO for every percentage point of return he gave me?” As soon as we saw the report we wanted to look at whether there was any correlation between overpay at money management firms (counting those that were paid highly for low performance as overpaid) and how the firms voted.

We asked the ever-amazing Jackie Cooke at Fund Votes to crunch some number for us. The result did not surprise us: the firms with the best pay performance linkage themselves voted more frequently against pay packages at other companies. Those with the worst pay performance link – those companies that themselves have executives paid higher than merited by their performance -- were more likely to approve pay packages at other firms.

The five companies with the best pay and performance linkages, supported an average of 86.2% of advisory votes on compensation. The five that were the worst, based on Skorina’s analysis, supported 93.4% percent of advisory vote packages. The average level of support for all the Money Managers that FundVotes had data on was 89%. This suggests something we believe to be true: when money managers are themselves overpaid, they are more likely to support the excessive pay of other executives, even if it is not in the best interests of the shareholders. This inherent conflict of interest is something we will continue to follow and seek to address.