Index funds now control half the U.S. stock mutual fund market, giving the biggest funds enormous power to influence decisions and demand better returns at the companies in which they invest trillions of dollars.

But the leading U.S. index fund firms, BlackRock Inc, Vanguard Group and State Street Corp, rarely use that clout. Instead, they overwhelmingly support the decisions and pay packages of executives at the companies in their portfolios, including the worst performers, according to a Reuters analysis of their shareholder-voting records.

The three fund firms, for instance, supported doubling the pay of the chief executive at California utility PG&E Corp after its stock plummeted over potential liability from maintenance problems linked to California wildfires. The funds supported big pay packages for executives at beauty products company Coty Inc – including nearly $500,000 for their children’s tuition – as the company struggled to digest its acquisition of Procter & Gamble’s beauty business. And all three cast pivotal votes against the proposed reform of splitting the CEO and chairman roles at General Electric Co after a decade of poor performance.

via Index funds invest trillions but rarely challenge management – Reuters