The AFL-CIO’s Mutual Fund Votes Survey examined votes cast by 78 of the largest mutual fund families on a wide range of executive compensation related proposals that appeared on shareholder ballots and were voted on at annual meetings between July 1, 2011, and June 30, 2012. The votes included in the Mutual Fund Votes Survey fall into three broad categories:

1. Shareholder proposals to reform executive compensation. These include proposals on golden parachutes, equity retention requirements, performance-based compensation and linking pay to sustainability. There were 64 such proposals at 53 companies included in the survey.
2. Executive compensation plans, including proposals to approve or amend equity compensation plans, performance-based incentive plans and director compensation plans. There were 1,777 such proposals at 937 companies.
3. Say-on-pay advisory votes on executive compensation. Beginning in 2011, most large public companies were required to provide shareholders an opportunity to cast an advisory vote on executive compensation. This study includes say-on-pay votes that took place at 2,474 companies during the 2012 proxy season.

Mutual fund proxy voting data was provided to the AFL-CIO by Fund Votes (www.fundvotes.com). Fund Votes obtained the mutual fund proxy voting data from the U.S. Securities and Exchange Commission Form N-PX filings, available at www.sec.gov. In total, the data consisted of 3,334 unique votes on shareholder proposals, 81,784 unique say-on-pay votes and 28,617 unique votes on executive compensation plans. Unique votes are defined as distinct vote actions taken by a fund family. If different funds within a fund family vote are at odds on the same resolution, each distinct vote will be counted. When different funds within a fund family vote in the same way, only one vote is attributed to that fund family for that vote action.

The purpose of the Mutual Fund Votes Survey is to compare how mutual fund families vote on shareholder proposals, executive compensation plans and say-on-pay votes. For each category of votes, letter grades have been determined based on each mutual fund family’s voting record relative to the voting records of the other funds included in the survey. Funds that voted to constrain pay more often than their peers received higher grades. Average grades have been determined based on the grades in the three categories.  

The Mutual Fund Votes Survey does not evaluate the appropriateness of individual votes cast by mutual funds on executive compensation matters. In many cases, votes to enable pay may be appropriate at individual companies where executive compensation is reasonable. Rather than evaluate individual votes, the Mutual Fund Votes Survey presents summary statistics on mutual fund voting behavior that illustrate a mutual fund family’s overall approach to voting relative to other mutual fund families.

Mutual fund votes are classified as follows: FOR votes on shareholder proposals are considered to be votes that constrain executive compensation, and AGAINST and ABSTAIN votes are considered to be votes to enable executive compensation. FOR votes on say-on-pay votes and executive compensation plans are considered to be votes to enable executive compensation, and AGAINST and ABSTAIN votes are considered to be votes that constrain executive compensation.

The percentage of times a mutual fund family voted to constrain executive pay is calculated by dividing the number of its pay constraining votes by the total number of its unique votes that were cast FOR, AGAINST or ABSTAIN on votes in that category. The mutual fund families included in the study were then ranked in each vote category according to the percentage of times they voted to constrain pay. Each mutual fund family was then awarded grades in each category based on the following grade curve:

Grade point averages for each fund family were then calculated based on these grades using the common four-point grade scale, with A=4.0, B=3.0, C=2.0, D=1.0 and F=0. Each mutual fund family’s grade point average was then converted into an overall grade using the following scale: