Value over Values: Evidence from State Pension Funds

Abstract

This paper uses newly available data to systematically analyze the financial and political determinants of voting by pension funds in corporate governance. For shareholder meetings held after July 2023, a new regulatory mandate requires pension funds to disclose their voting decisions for executive compensation issues. We use the first batch of regulatory filings from public pension funds to reveal a striking partisan gap in the decision to vote against management on executive compensation issues. Democratic-run pension funds are approximately five percentage points more likely to vote against management, but their decision to do so does not seem to be driven by the financial performance of the firm. Instead, Democratic-run funds seem to be influenced by proxy advisor recommendations and the magnitude of CEO compensation. On the other hand, funds from Republican states that have been most vocal about corporate governance issues or passed laws forbidding their pension funds from considering environmental, social, and governance (ESG) factors base their executive compensation votes on firm performance and are less reliant on proxy advisor recommendations or the magnitude of CEO compensation. Finally, we use the disclosures' novel data on share lending to find that pension funds with worse financial support are more likely to lend out their shares.

Keywords: JEL classification: G34, G38, H75, K22, M14 Corporate governance, executive compensation, pension funds, political economy