Mutual Funds Quiet on Bank Pay

MarketWatch suggests mutual fund companies should adopt a more pro-consumer approach to proxy voting, especially on issues such as executive pay. The column also points out the value in tracking the voting records of mutual fund firms — one of the core services offered by ProxyDemocracy.

MarketWatch cites the example of Lazard Ltd. The investment bank paid 72 percent of its annual revenue to staff in compensation and benefits in 2009, an increase from 56 percent in revenue the year before, while profit declined 95 percent, according to MarketWatch.

Large shareholders of Lazard, including Pioneer Investments and T. Rowe Price Group Inc., declined to comment on the shift, MarketWatch reported.

“Their silence illustrates how much of Wall Street operates,” MarketWatch said. “While mutual funds — and large institutional funds — nominally represent individual investors, it’s rare for them to speak out on issues.”

Russel Kinnel, director of fund research as Morningstar Inc., is quoted as saying fund firms seldom take a public stand against management over compensation. While managers do talk privately to companies about pay, Kinnel said they worry that taking the issue public would limit their access to, and information from, corporate management.

Funds should be tougher and more public when they oppose pay practices, said Nell Minow, president of the Corporate Library, which focuses on corporate governance.

“Fund managers could make [all] the difference,” Minow told MarketWatch.

One of the remedies Minow suggests is to grade funds on their proxy votes — a big part of our work at ProxyDemocracy. We examine fund company balloting in four key areas: the election of directors, compensation, corporate governance and corporate impact. We also keep score. It’s part of this organization’s mission to ensure corporations and funds are accountable to their shareowners.

Incidentally, Pioneer ranks ahead of most of its peers in ProxyDemocracy’s running tally. The firm is considered more activist on our scale than 70 percent of fund families; on the issue of compensation, Pioneer is in the top 18 percent. T. Rowe Price is in the 50th percentile in an average of all the voting categories and ranks behind two-thirds of firms in votes on executive pay.