Executive Compensation

Excessive CEO pay, a contributor to and a symbol of the growing disparity between rich and poor, is a corporate governance challenge that investors must address

Executive compensation has long been an area of focus for Calvert. In the wake of the financial crisis, executive compensation is seen by many as an indication of the way our economic system rewards CEOs and other senior executives at the expense of workers and shareholders whose retirement and college savings are invested in public companies. Public distrust of “the system” is fueled by news reports of the hefty, multi-million-dollar compensation and severance packages for executives of firms that have failed or are foundering. There is a clear problem when soaring executive pay packages are awarded at times when a company’s stock price—and shareholder value—is plummeting.

A December 2009 study conducted by three researchers at Harvard Law School found that during the period from 2000-2007 the top executives at Bear Stearns and Lehman Brothers were awarded cash bonuses exceeding $300 million and $150 million, respectively, and that the top five executives at those two firms took home more than $2 billion between 2000 and 2008. The study notes that even though the financial results upon which those bonuses were paid headed in the opposite direction beginning in 2008, overall, the executives still reaped giant rewards, while everyday shareholders, including millions of people whose 401ks held shares in these and other financial firms, suffered significant losses. 

In its 2011 CEO Pay Survey, Governance Metrics International (GMI) found that while the broader economy saw modest economic growth in 2010, median CEO pay in S&P 500 Index companies increased by almost 18%.1 According to the GMI report, the average S&P 500 CEO made over $11.5 million in 2010 and the upward trend shows no sign of abating. Boards of Directors have largely shown themselves to be unwilling to reign in compensation. It is up to shareholders.

That is why in the wake of the 2008 financial crisis, Calvert took action to address the all to frequent disconnect between corporate performance and executive compensation. Calvert filed ten shareholder resolutions calling upon companies to give shareholders a “Say on Pay.” A particular focus for Calvert were investment and banking companies, including Morgan Stanley, JPMorgan Chase, Huntington Bank, and American Express. Calvert ultimately withdrew its resolutions in response to each of these firms agreeing to give shareholders an advisory vote on executive compensation, a “Say on Pay”.

Microsoft and Jones Apparel are two other firms that implemented this governance reform as a result of Calvert’s engagement.

Calvert engages with individual companies to hold them accountable and to help establish higher standards. These higher standards often serve as an incentive to industry peers to improve their own performance and in the case of executive compensation, contribute to broad public policy improvements.

The successes that investors like Calvert had with individual companies on "Say on Pay" helped to pave the way for a requirement in the Dodd-Frank Wall Street Reform and Consumer Protection Act that all publicly traded companies give shareholders an advisory vote on executive compensation. The "Say on Pay" advocacy success is an example of the kind of impact that investors can have when they engage as they have the right to do.


Calvert Investment Management, Inc. 4550 Montgomery Ave. Bethesda, MD 20814

Accounts managed by Calvert Investment Management, Inc. may or may not invest in, and Calvert is not recommending any action on, any companies listed.

1. 2011 Preliminary CEO Pay Survey, Governance Metrics International, June 7, 2011.

11726 (11/11)

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