Pension Funds Urge Companies to Curb Compensation Consultants' Role

Strategic Insights -

A coalition of US pension funds has called on the country's largest companies to rein in the influence of compensation consultants, warning that their growing power could lead to corporate scandals. The investors, who collectively manage $850 billion in assets, have expressed concerns that the consultants' dual role in advising on executive pay and other management issues could compromise their independence and lead to inflated pay packages at the expense of shareholders.

Key Takeaways:

  • The coalition of pension funds, led by the California State Teachers' Retirement System, has sent a letter to the top 25 US companies by market capitalization, including Exxon, Wal-Mart, and Microsoft, urging them to curb the role of compensation consultants.
  • The investors are concerned that the consultants' dual role in advising on executive pay and other management issues could compromise their independence and lead to inflated pay packages at the expense of shareholders.
  • Compensation consultants have become increasingly influential in recent years, with most boards relying on their advice when setting executive pay.
  • The letter draws a parallel between the dual role of pay consultants and that of auditors, suggesting that concerns about independence are analogous.
  • Several companies that received the letter declined to comment, while others pointed out that there had been little evidence of conflicts of interest involving compensation consultants.

Statistics:

  • $850 billion: The total amount of assets managed by the coalition of pension funds.
  • 25: The number of US companies by market capitalization that received the letter from the pension funds.
  • 12: The number of state and union pension funds that signed the letter.
  • $1 trillion: The estimated value of executive compensation in the US. (Source: Bloomberg)

Sources:

  • Bloomberg: "Pension Funds Urge Companies to Curb Compensation Consultants' Role"
  • California State Teachers' Retirement System: "Letter to Compensation Committees"
  • Various state and union pension fund websites: Names and websites of signatory pension funds.