The $410 billion California Public Employees Retirement System (CalPERS) is sending a message to members of corporate boards: find a way to better align executive pay with performance or have your re-election to the board opposed at the annual meeting.

CalPERS Is Voting Against Directors Over Compensation – Will Others Follow? – Corporate Board Member

For such a large institutional shareholder to take such a stance is significant because it could encourage other large investors to do the same. Executive compensation is becoming a volatile topic on corporate board agendas as companies and shareholders reassess how the impact of the Covid-19 pandemic should factor into director and CEO pay.

During the 2020 proxy season, CalPERS voted against 2,716 directors who sat on board compensation committees because the institutional investor felt the executive compensation plans put forth didn’t accurately reflect the performance of the company.

According to a report from Pensions & Investments, CalPERS voted against 52 percent of the 2,256 say-on-pay votes on executive compensation that were cast as of June 30 this year. Since shareholders typically approve more than 90 percent of the say-on-pay votes each year, CalPERS appears to be urging boards to take a closer look at the compensation models they are using.

… These questions and more will likely confront boards as we move into next year if investors believe they have been presented with pay plans that don’t fully account for the negative financial impacts caused by Covid-19 and other factors. The investor approval rate for say-on-pay votes on executive pay has consistently been above 90 percent each year since the practice was implemented, and some have viewed that as proof that shareholders generally approve of the compensation their top executives receive.

CalPERS Is Voting Against Directors Over Compensation – Will Others Follow? – Corporate Board Member