Dear CII List Serv Subscribers,
In 2019 the Governance Committee of the Marin County Employees’ Retirement Association (MCERA) began to explore ways to ensure that its investment managers complied,
as closely as possible, to MCERA’s Proxy Voting and Corporate Governance policy. Although the Board of Retirement had delegated the voting of proxies to its managers, it still expected the managers to vote in alignment with the positions stated in the policy.
Given MCERA’s relative size and the limited resources available to pursue proxy voting issues the Committee choose initially to review all proxy votes cast by
its managers and to engage managers to gain greater insight into why certain votes were being cast. The results of the reviews and discussion led the Committee to believe that the best way to align proxy votes to MCERA’s policy goals was to recommend that
the Board consider engaging Institutional Shareholder Services (ISS) to vote MCERA’s proxies for its domestic equity managers using the ISS Public Fund Policy. This recommendation was adopted by the Board in January 2021.
The Governance Committee has continued to focus on key issues where the policy considerations of MCERA were still misaligned with certain votes being cast, specifically
votes on “say on pay.” The Committee noted that Public Fund policies generally voted against "say on pay" votes that were for egregious items included in the pay package (e.g. tax gross ups) or because of weak links between the pay and whatever performance
measures the pay is based on. The Committee also noted that the analysis did not include any measure of "excessiveness" of the pay of the Chief Executive Officer compared to the pay of other employees of the company. This was of particular concern when looking
at some of the relative data points. Specifically:
1.
The Economic Policy Institute reported “From
1978 to 2021, CEO pay based on realized compensation grew by 1,460%, far outstripping S&P stock market growth (1,063%) and top 0.1% earnings growth (which was 385% between 1978 and 2020, according to the latest data available). In contrast, compensation
of the typical worker grew by just 18.1% from 1978 to 2021."
2.
"In 2021, the ratio of CEO-to-typical-worker compensation was 399-to-1 under the realized measure of
CEO pay; that is up from 366-to-1 in 2020 and 20-to-1 in 1965 and 59-to-1 in 1989."
In March 2023, the Governance Committee discussed the concept of linking votes on executive compensation packages to a threshold for how much an executive compensation proposal could exceed the median company
pay. The Committee observed that many public pension plans are setting higher thresholds for “No” votes on executive compensation based on the percentage of median pay. Three thresholds, consistent with other public sector peers, were discussed: limiting
CEO pay to 50, 75, or 100 times median pay. Using data from 2022, if MCERA were to have used these criteria to vote on CEO pay packages it would have voted “No” on 68%, 61%, and 53% of executive compensation packages, respectively. The Committee ultimately
recommended that the Board direct ISS to create a customized Public Fund Policy for MCERA that would vote against CEO pay packages that are more than 100 times the pay of the median worker in the corporation. The Board adopted the Committee’s recommendation
in May 2023.
MCERA is aware that some public sector investors have additional criteria for voting “No” on executive compensation packages. For example, some investors vote
“No” if the pay proposal is more than three times the average pay of the other four Named Executive Officers or the pay target for the CEO is greater than the average pay of the CEO's peers.
MCERA is interested in learning the following from other CII list subscribers:
Responses can be sent directly to the following:
Thank you.
Jeff Wickman
Retirement Administrator
Marin County Employees’ Retirement Association