May 2013 Newsletter
Corporations Taking Note of the
AFL-CIO Equity Index Fund
Solidarity is what makes the labor movement so powerful. When we act together, we are always more powerful than when we act alone. Everyone receiving this email already understands that, so I’m not surprised by the momentum and showing of solidarity that has propelled the AFL-CIO Equity Index Fund well past $3 billion over the last two years. And when a fund grows so quickly, it raises some eyebrows on Wall Street.
A recent article in the Pittsburgh Post-Gazette – Heard Off the Street: AFL-CIO Index Fund Drawing Interest – explains how the AFL-CIO Equity Index Fund replicates the S&P 500 Index’s returns with low expenses of 1.5 basis points.
“We are extremely well-priced in this universe, and it’s one of the reasons why people are taking notice,” says Shepard Burr, President of ASB Investment Management, the Bethesda, MD firm that manages the AFL-CIO Equity Index Fund.
The fund also has an additional objective of advocating CEO pay reform and other issues important to union workers and the middle class.
An article this past weekend in the New York Times – The Giant of Shareholders, Quietly Stirring – discussed the unique role that shareholders can play. The article quotes Brandon Rees, acting director of the AFL-CIO Office of Investment:
“We believe shareholders have the power and the obligation to use every tool at their disposal to encourage greater accountability.”
Together we can really build a union economy, where we put our dollars to work for us, rather than against us. I want to thank the 47 pension plans who are already a part of the Fund and urge other plans to consider joining us.
President & Managing Director
AFL-CIO Investment Trust Corporation
In the News:
New York Times: The Giant of Shareholders, Quietly Stirring
BlackRock, the world’s largest asset manager, is far from being an activist investor, but it is starting to ask more questions about companies in which it has stakes:
“A number of public pension funds and activist shareholders argue that BlackRock could use its influence to greater effect and say it sides with management far too often. It received a failing grade from the AFL-CIO in a 2012 survey; BlackRock voted with the federation just twice in 32 shareholder votes on issues that the union sees as important to the trustees of union pension funds.
‘We believe shareholders have the power and the obligation to use every tool at their disposal to encourage greater accountability,’ said Brandon Rees, acting director of the AFL-CIO Office of Investment. ‘It’s disappointing that such a large company like BlackRock votes for so few shareholder resolutions.’
There is agreement, however, that the firm has become more active in recent years, as other shareholders, too, have been expressing themselves more forcefully. It’s easy to be cynical about the value of voting on what are ultimately nonbinding resolutions that companies can ignore. But investors can now wield more power than in the past, partly because of recent laws that require companies to hold a vote on issues like executive pay. On Tuesday, in fact, shareholders of JP Morgan Chase will meet in Tampa, Fla., where the company is expected to announce the results of a vote on an unusually tense confrontation over a motion to split the roles of chairman and CEO, both now held by Jamie Dimon.”
Read the rest of the NYT article by clicking HERE.
“With exceptional benchmark tracking and proxy voting and shareholder resolutions, we are very proud to have chosen the AFL-CIO Equity Index Fund and strongly support the notion that our pension plans should invest in the interests of their participants and beneficiaries.”
– Joseph Nigro, General President, International Association of Sheet Metal, Air, Rail, and Transportation Workers (SMART)
Corporations Take Note of AFL-CIO Equity Index Fund’s Shareholder Activism
The AFL-CIO Equity Index Fund is making its presence felt as a shareholder this proxy season. Already, the $3 billion collective investment fund has declared success with shareholder proposals at three major corporations: Citigroup, Chesapeake Energy, and Pitney Bowes.
As reported by The Wall Street Journal on the fund’s activism, “changes pushed by activist investors are helping tie management compensation more closely to corporate performance, and eliminating several practices that critics have seen as excessive or unfair,” (“Longstanding Pay Practices Under Attack by Activists,” March 20, 2013.)
At Citigroup, which last year failed to get a majority of shareholders to support its ‘Say-on-Pay’ advisory vote on executive compensation, the fund asked the financial services company to ban the acceleration of equity awards for departing executives. After the proposal was filed, the Board adopted a resolution waiving its ability to accelerate vesting of executives’ equity awards upon termination.
At Chesapeake Energy, another company which also failed its Say-on-Pay vote in 2012, the fund asked the company to disclose its specific performance metrics for incentive pay and the resulting payouts. The company committed to enhance its proxy disclosures to include the specific performance measures, formulas, and payout schedules for both the 2012 and 2013 performance share unit awards.
The fund has also submitted proposals to Abercrombie & Fitch and Nabors Industries seeking the disclosure of specific performance metrics for executive pay. Both of these companies lost their Say-on-Pay votes last year like at Chesapeake Energy and Citigroup. The proposals are expected to go to a vote by shareholders.
And at Pitney Bowes, the fund asked the company to appoint an independent chairman. Combining the positions of Chairman and CEO can reduce management accountability by concentrating too much power in one executive. The fund withdrew its proposal at Pitney Bowes after it named an independent director as chairman.
AFL-CIO PayWatch Spotlights CEO Pay
U.S. CEOs Make 354 times the Average Worker
Chief executives of the nation’s largest companies earned an average of $12.3 million in total pay in 2012, according to the AFL-CIO’s recently updated Executive PayWatch website available at www.paywatch.org. In contrast, the average rank-and-file worker made just $34,645 last year.
The gap between CEOs and rank-and-file workers has widened dramatically over the past 30 years. In 1982, top executives received 42 times the pay of the average workers, while in 1992 the ratio exceeded 200 times. Last year, CEOs make 354 times more than a typical American worker, according to PayWatch.
“Runaway CEO pay is fueling economic inequality in the U.S. and undermining our shared prosperity,” said AFL-CIO President Richard Trumka. “In addition, high levels of CEO pay can encourage excessive risk by CEOs, which hurts the long-term prospects of the companies they run.”
Not only are U.S. CEOs the highest paid in the world, but the gap between U.S. top executives and workers is also the steepest among developed countries. In the United Kingdom, CEOs are paid 84 times that of the average UK worker, and in Poland, CEOs are paid only 28 times the average worker.
In this current corporate climate of runaway CEO pay, the AFL-CIO Equity Index Fund plays a key role as an advocate for executive compensation reform. The fund is giving union members’ pension funds the ability to engage in shareholder activism and proxy voting on behalf of plan participants and beneficiaries.