Corporate insider has a go at CEOs over excessive pay

US FIRMS often pay their CEOs far too much compared with their lowestpaid workers as boards of directors compete to compensate their top executives more than peers.

That harsh critique comes from one of Corporate America’s friends.

“It would be healthier for our society if CEOs were paid less,” said Michael Kagan, who oversees about $9bn in assets at ClearBridge Investments in New York. “You have this arms race, where people look at peers to see the pay is fair, so pay is raised year after year.”

Even though Mr Kagan’s vehicles such as the ClearBridge Appreciation Fund generally vote to back management on executive pay, he worries that the comparisons companies use to set compensation have helped drive rewards to levels he calls “enormous” as boards look to outdo each other.

Mr Kagan’s comments mark a rare exception to the stance of most mutual fund executives not to discuss executive pay in detail.

That could be changing as years of debating compensation rates at US firms made professional investors more comfortable talking about it, said Stephen Brown, a corporate governance consultant and former head of the Society of Corporate Secretaries and Governance Professionals.

“I wouldn’t be surprised if you see more portfolio managers start to talk about it as they get more used to it,” said Mr Brown, adding that Mr Kagan’s remarks on CEO pay were the most critical he could recall from a mainstream fund manager.

“What he’s voicing is this reality that when you perform, people have less to complain about with pay.”

Critics say the funds industry could do more to restrain CEO compensation, a view shared by Barney Frank, the former Massachusetts congressman and an architect of the widely held advisory votes on pay.

Data compiled by London research firm Proxy Insight shows ClearBridge funds voted “against” management in companies’ advisory votes on pay 8% of the time in the 2014 proxy season. Mr Kagan said ClearBridge often voted as recommended by proxy adviser Institutional Shareholder Services, supplemented by its own reviews.

He cited software maker Splunk, whose CEO Godfrey Sullivan received $17m for the 12 months ended January 31 2014, which Mr Kagan found too high for a firm with $303m revenue in that period. “We called them and said, come on, you can’t pay yourselves this much money.”

After a majority of shareholders voted against the pay Splunk recast its compensation so Mr Sullivan made $1m in the next year and forfeited shares worth $14.5m.