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TIAA-CREF and CalPERS to challenge executive pay

US- Two of the world's largest pension funds, TIAA-CREF and CalPERS, are planning to target companies that offer over-generous pay schemes, and to request changes from their boards.

TIAA-CREF, the US teachers’ retirement fund, is planning to compile a list of 50 companies with the worst executive pay schemes, and to present a proposed pay scheme to their boards.

Suggestions are that stock options would have to be performance-related, have extended holding periods, and contain an element of downside risk. If these are rejected, TIAA-CREF will file shareholder resolutions against the companies’ management.

CalPERS, the Californian public employees’ fund, with $135bn in assets under management, is also preparing a list of companies which it would like to see implement changes.

The issue of corporate governance has come under scrutiny amid corporate scandals among companies such Enron, Tyco and Worldcom, which have seen US pension funds lose hundreds of millions of dollars.

In August, the Board of Administration at CalPERS voted to adopt a set of investor protection principles aimed at cleaning up corporate abuses and ensuring greater transparency of money management firms.

TIAA-CREF is similarly implementing a stringent set of principles, pushing for fair representation for shareholders, whose stock is held in its CREF stock account, CREF global equities account and CREF’s other international investments. CREF intends to employ greater resources in its corporate governance programme in Western Europe, and has stated that is prepared to file its shareholder resolutions to seek change if companies ignore its concerns.

“In many countries in Western_Europe, there are companies where there is an absence of one share – one vote for shareholders. There is also a lesser degree of accountability to corporate boards”, says Peter Clapham, chief investment counsel for TIAA-Cref.

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