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CalSTRS
Guidelines Offer Substance on Executive Pay
May
5, 2009
CalSTRS calls for companies to look at
salary plans that promote responsible practices.
SACRAMENTO, CA– With risky
behavior and excessive executive pay blamed for fueling the economic crisis,
the California State Teachers’ Retirement System (CalSTRS) is calling for
more responsible executive pay policies.
Today, CalSTRS launched an initiative that
calls on 300 of its portfolio companies to develop comprehensive executive
compensation policies and to allow shareholders advisory votes on those
policies. The goal is to reward long-term thinking and improve
pay-for-performance practices while deterring excessive risk taking.
This initiative includes the publication of
executive compensation model policy guidelines and communication with
targeted companies that stresses using those guidelines. Advantages to
adopting the CalSTRS-proposed model guidelines include the development of
long-term views on compensation and the setting of baselines for evaluating
the effectiveness of the resulting compensation programs.
“CalSTRS has a long history of promoting
responsible compensation policies that link pay to performance and align
shareholder and management interests,” said Anne Sheehan, CalSTRS director
of corporate governance. “We see our efforts as key to improving long-term
returns and meeting our fiduciary duty to California’s teachers and their
families.”
The CalSTRS initiative started with letters
to 300 of its largest holdings communicating the fund’s support for an
advisory vote on compensation.
To help companies develop compensation
policies, CalSTRS provided
model principles and
guidelines that include key elements of a policy along with goals and
objectives to consider in developing a policy. The CalSTRS principles offer
companies a five-part approach that calls for:
- A clear
overarching philosophy that aligns the interests of shareholders and
management
A well designed, comprehensive
compensation policy that takes a detailed look at all of its components
- Transparency
through a plain-English description of a well-crafted compensation plan
- Accountability
through a responsible compensation committee
- A compensation
committee comprised of independent directors using only independent
advisors and consultants
“Our model policy and principles for
executive compensation seek to bring coherence to an exceedingly complex
issue,” Sheehan said. “There are no easy answers to addressing the problem
of poorly aligned executive compensation. But nothing can be achieved
without the communication and agreement between companies and shareholders
called for in our guidelines.”
CalSTRS will follow up with targeted
companies through stepped-up communications, emphasizing use of the
guidelines and, if necessary, withholding proxy votes on directors and
compensation plans.
The
California State Teachers'
Retirement System, with a $111.6 billion portfolio, is the second
largest public pension fund in the United States. It administers retirement,
disability and survivor benefits for California's 833,000 public school
educators and their families from the state's 1,400 school districts, county
offices of education and community college districts.
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