Administration March 12, 2006

Pension Funds Demand SEC CEO Pay Probe

December 15, 2005 (PLANSPONSOR.com) - Citing new research about the connection between skyrocketing CEO pay and company performance, a group of pension funds has formally requested that federal regulators take a much closer look at the issue.
Reported by

The funds, which together manage nearly $1 billion in assets, made the request in a confidential letter to the US Securities and Exchange Commission (SEC), USA TODAY reported.

In the letter cited by the newspaper, the pension funds said new research showed that CEO pay at many companies listed in the Russell 3000 benchmark had no connection to how well those firms performed.

The funds that sent the letter include:

  • the California Public Employees’ Retirement System (CalPERS)
  • the California State Teachers’ Retirement System (CalSTRS)
  • two New York state funds
  • the Ontario Teachers’ Pension Plan
  • the State Board of Administration of Florida.

According to the research, at 60 of the worst-performing companies in the Russell 3000 group, which lost $769 billion in market value over the past five years, the aggregate pay for the top five executives of those 60 companies over the same period was $12 billion.

The letter to the SEC from the pension funds cited Honeywell as a company where, during the last five years managers erased $4.3 billion in economic value – defined as net operating profit minus the total cost of capital used up – while the top five executives earned a total of $223 million for the period.

Executives at Time Warner caused a decrease of $41.4 billion in economic value (and $59.8 billion in market value) while collecting $1.3 billion in pay, the pension fund letter asserted.

SEC Chairman Christopher Cox said last month that the commission would develop a rule proposal early next year regarding executive compensation. Once the proposal is announced, most likely in January, the SEC will seek public comment.

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