ERAFP, the €15bn Paris-based French Public Service Additional Pension Scheme, a 100% SRI pension fund, instructed its asset managers to back just one in five proposed director pay deals at a sample of 40 French companies, of which 80% were in the country’s CAC40 index of largest companies, in this year’s shareholder voting season, according to statistics released by the scheme. In January, the fund signalled its intent to get tough with excessive board rewards by demanding that investee companies limit their executive pay to a maximum 50 times median salary. Other investors did not back ERAFP’s hard line on board remuneration and instead approved the executive remuneration packages at the same 40 companies by an 89% average voting level.
ERAFP, one of the largest public pension funds in the world with nearly 4.5m beneficiaries in the French civil service, local authorities and public hospitals, receives close to €1.75bn in contributions each year. It has been a notable exception amongst French asset owners by publicly declaring its voting strategy and publishing the results. In 2012, it unveiled a detailed voting and engagement strategy to cover its relationship at annual general meetings (AGMs) with investee companies. The move is rare in France where shareholder activism is not common.
The corporate governance push has since been followed by Ircantec, the €6bn French public pension fund, the“Institution de retraite complémentaire des agents non titulaires de l’État et des collectivités publiques” (supplementary pension institution of non-permanent staff of the state and public authorities).
This year, ERAFP’s published voting results included a focus on 40 unnamed French AGM results and 20 unnamed international AGMs.
The French fund was also similarly tough on dividend payments by French companies, voting against at 66% of the AGMs, although again its position was not held by the majority of shareholders, which almost unanimously backed the dividend payments (99% average vote for). ERAFP said in the 2014 French AGM season it had noted an increase in the independence and gender diversity of boards, but also a rise in executive pay levels. Broadly, investors in French companies took a slightly tougher line on overall company shareholder resolutions proposed, with approval rates falling to 93.6% down from 96% in 2013.
On the international AGMs, ERAFP said votes supportive of company resolutions were higher than in France at 95.1%. In addition, it said remuneration votes were weakly contested at an average of 7.3% votes against, while investors almost always voted in favour of company dividend proposals (99.5% average). Internationally, ERAFP said board independence was higher than in France, but that the gender diversity of advisory boards was lower on average than in France.