Even if one doesn't consider environmental, social, governance (ESG) criteria in evaluating companies, it's useful to know which company CEOs are overpaid in comparison to the rest of the company, and in comparison to their peers. What if these CEOs were paid according to shareholder return? In many cases, their pay would be cut. That's according to findings from the sixth annual report, The 100 Most Overpaid CEOs of the S&P 500: Are Fund Managers Asleep at the Wheel? published by As You Sow, a nonprofit organization focused on shareholder advocacy. The report's rankings are calculated on the assumption that executive pay should be closely linked to corporate performance. The most overpaid CEOs "each had compensation that was at least $20 million higher than if their pay had been properly aligned with performance. Of these CEOs, one received compensation that was $200 million above what the performance of the company justified, another one was $100 million above what it should have been based on TSR, and two others more than $50 million higher," the report says. Despite the fact that the American public recognizes that overpaid CEOs contribute to the drastic income inequality in the U.S., the fact remains that it is still possible to identify 25, even 100 most overpaid CEOs. Perhaps someday that list will shrink, as Congress continues to propose bills calling for accountability and other solutions, and as income inequality becomes even more stark due to the effects of the coronavirus pandemic. Or not. The voting practices of mutual fund and ETF managers at annual shareholder meetings is one reason why, the report suggests, some company CEOs continue to be overpaid, despite public and Congressional outcry. In fact, that was an important objective of this report, to identify "which managers are properly exercising their fiduciary duty, and which ones are blindly following the recommendation of management to approve excessive CEO pay packages." It cites analysis from Reuters and the New York Times that finds that BlackRock and Vanguard were "the most inclined to follow what management says," including, obviously, managements' recommendation that CEO pay packages be approved. That's "very different from BNY Mellon, Prudential, UBS, Aberdeen and Allianz," the report says. There is much more that is interesting in the report, including case studies of Boeing, General Electric, Halliburton, Walt Disney and others; a chart showing the percent of the time large financial managers have voted to oppose CEO pay packages; as well as a section on pension funds' voting records. (Check out Rhode Island, which in 2018 voted against pay at S&P 500 companies less than 13% of the time, but in 2019 turned that around and voted more than half the time against pay.) As the report says, not only is there greater clarity into who are the "leaders and laggards" but we "are witnessing the funds learning from each other" as more financial fund managers "continue to improve their analysis and vote against more CEO pay packages each year." The ranking process used data provided by Institutional Shareholder Services (ISS), and includes the following, according to As You Sow:

• Employing a statistical regression model to compute what the pay of the CEO would be, assuming their pay is related to cumulative total shareholder return over the previous five years
• Using that formula to calculate the amount of excess pay a CEO receives
• Adding to that, data that ranks companies by what percent of company shares were voted against the CEO pay package
• Examining the pay ratio between a CEO's pay and the median company employee pay, to calculate a company's ranking.

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