Aug. 2015 letter from Mary Kay Henry to SEIU trustees
Letter from Mary Kay Henry to SEIU trustees on suggestions for pension fund best practices, including the importance of increasing diversity as part of a trustee’s fiduciary responsibilities to pension fund participants and beneficiaries.
Human Capital Management (HCM)
HCM is gaining increasing recognition as a significant risk for long-term investors. CtW Investment Group recently released a report analyzing the negative relationship between pay inequality within publicly traded companies and long-term shareholder returns. Below is a summary of the reports major findings as well as a list of additional resources on the subject of HCM.
- In the wake of the financial crisis and long recession, shareholders are acting to ensure companies manage long-term risks and opportunities.
- Human Capital Management is one of the key emerging areas with the Conference Board calling it the top challenge for CEO’s in 2014.
- There is growing concern about income inequality across many industries. E.g. McDonald’s for the first time disclosed that concerns over income inequality and its human capital management practices poses a potential risk to its business.
- Research indicates that pay inequality within a publicly traded company has a materially negative, and statistically significant effect on long-term shareholder returns, specifically:
- There is an overall negative correlation between the ratio of CEO pay to our estimate of median pay for companies in the S&P500 from 2007-2012.
- When grouped by performance, high performing deciles of the S&P500 have much lower CEO Pay Ratios than low performing companies.
- When grouped CEO Pay Ratio, low pay ratio companies have much better performance than high pay ratio companies.
- Overall, and controlling for other relevant variables, there is a statistically significant, negative relationship between the CEO Pay Ratio and future long-term performance, such that an increase in the CEO Pay Ratio of 10 (from 200 to 210) will reduce long-term performance by 80 – 110 basis points.
Additional HCM resources
Rakesh Khurana, “The Curse of the Superstar CEO” Harvard Business Review, September 2002.
Below is an abbreviated list of resources to support systematic thinking about responsible investment by trustees, and to identify the core issues they face in developing strategies for long-term sustainable wealth creation and responsible investment.
Trustee Leadership Forum for Retirement Security (TLF) at Harvard University
The Trustee Leadership Forum for Retirement Security (TLF) is an applied research collaboration with labor-affiliated trustees of public and Taft-Hartley pension funds. The TLF’s goal is to support systematic thinking about responsible investment by trustees in the service of long-term pension fund sustainability.
CalPERS Investment Beliefs In September 2013, the CalPERS Board of Administration adopted a set of ten Investment Beliefs intended to provide a basis for strategic management of the investment portfolio, inform organizational priorities, and ensure alignment between the board and CalPERS staff.
CalPERS Sustainable Investment Research Initiative
CalPERS Sustainable Investment Research Initiative (SIRI) seeks to drive innovative thought leadership that will inform and advance understanding of sustainability factors and the impact they may have on companies, markets, and investment intermediaries from the perspective of a large, global, long-term, and multi-class institutional asset owner.
The Committee on Workers’ Capital (CWC) is an international labor union network for dialogue and action on the responsible investment of workers’ capital. With over 200 members from 25 different countries, the CWC connects labor union organizations around the world to advance the responsible investment agenda on the global stage.
The International Corporate Governance Network (ICGN) is an investor-led organization of governance professionals. ICGN’s mission is to inspire and promote effective standards of corporate governance to advance efficient markets and economies world-wide.
The Local Authority Pension Fund Forum (LAPFF) is the UK’s leading collaborative shareholder engagement group. Formed in 1990, LAPFF brings together 59 local authority pension funds from across the country with combined assets of over £120 billion.
United Nations Principles for Responsible Investment (UNPRI) is an international network of investors working together to put six Principles for Responsible Investment into practice.