In Facebook's first pay vote, tough love from an old friend

Aug 29 2013, 10:00 IST
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SummarySome of Zuckerberg's mutual fund backers deliver a tough message on compensation for FB leaders.

Some of Mark Zuckerberg's mutual fund backers delivered a tough message on compensation for the leaders of Facebook Inc.

Fidelity Investments, led by its $98 billion Contrafund, was among those voting against the pay of the social media company's top leaders in a nonbinding contest at its annual meeting in June, its first since going public.

Securities filings show other funds voting against the pay included Legg Mason Capital Management Value Trust and Franklin Resources' Franklin Growth Fund.

While the funds' exact objection was not spelled out, one reason could be perks. Facebook Chief Executive Zuckerberg was paid $1.99 million in 2012, according to its proxy filing, much less than other executives, like Chief Operating Officer Sheryl Sandberg, who received $26.2 million.

Yet ISS, the influential proxy adviser to institutional shareholders, recommended votes "against" the compensation. It questioned practices such as stock awards and the $1.2 million spent on Zuckerberg's personal use of aircraft in 2012.

Although shareholders backed Facebook's executive pay by a wide margin, the ballots cast by Fidelity - Facebook's largest outside shareholder and a longtime investor - show how dynamics have changed for Facebook now that it is a publicly traded firm, said Edward Hauder, a senior adviser at Exequity LLP, a Chicago-based executive compensation consulting firm.

Mutual fund managers, like Contrafund's William Danoff, may remain fans of the social media darling as an investment. But fund votes are generally controlled by separate departments that bring a cold policy analysis to proxy voting.

"It's just business," said Hauder.

A Facebook spokesman declined to comment.

The votes at Facebook are just one sample from a trove of material filed by asset managers this month.

Although big mutual fund firms dominate shareholder lists across the S&P 500, fund executives rarely discuss how they voted in particular proxy contests - making their annual filings a rare look under the hood.

At the same time, corporate shareholder meetings have heated up due both to shareholder discontent after the financial crisis and activist investors and labor groups conducting more aggressive campaigns. For instance, activists had urged a measure to require an independent chairman at JPMorgan Chase Co. which was not approved.

Filings for Fidelity's Contrafund and another well-known vehicle, Magellan, showed they voted against that measure, which would have split the roles of current chair and chief executive Jamie Dimon.

Activists also campaigned against the chairman of Occidental Petroleum Corp., Ray Irani, who did not win a majority of votes and stepped down from

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