04/19/2012 12:25 pm ET Updated Jun 19, 2012

CEO Pay Rising Less Quickly Due To Shareholder Discontent: Study

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* CEO pay rose 14 pct in 2011 vs 23 pct in 2010

* AFL-CIO presidents says Citigroup pay vote "a bell-ringer"

* Mutual funds still vote with management on most pay votes

* BlackRock with management on pay in 97 pct of votes

By Ross Kerber

April 19 (Reuters) - Compensation of top executives at publicly traded companies rose by 14 percent on average in 2011, a sharp slowdown from the prior year amid growing shareholder pressure on pay and performance, the AFL-CIO said in a report on Thursday.

The results demonstrate that major shareholders are beginning to focus on executive pay and corporate boards are paying attention, Richard Trumka, president of the AFL-CIO, the largest U.S. labor group, said during a conference call to present the findings.

"The good news is that after 15 years, shareholders are beginning to protest," he said.

Compensation for top executives in 2010 had risen on average by 23 percent, the AFL-CIO said.

The average chief executive received $12.9 million last year, almost 400 times the pay of the average American. The average American earned $34,053 and got a 2.8 percent raise, the union said.

The disparity in pay has become a flashpoint in the ongoing debate over U.S. pay inequality. Last fall's "Occupy Wall Street" movement led demonstrations against wealth disparity in 100 U.S. cities. Now large investors are taking an increasingly hard line on executive compensation.

The two trends seem to be converging to create a particularly contentious annual meeting season at many large corporations.

Just two days ago, shareholders of Citigroup shocked the giant bank's board with a vote on no confidence on its executive pay package for 2011, which included $14.8 million for Chief Executive Vikram Pandit. In an advisory "say on pay" vote required by the Dodd-Frank law, 55 percent of voting shareholders opposed the pay plan.

The surprise rejection vote was "a bell-ringer" showing how investors are giving companies tougher reviews, Trumka said on Thursday. "Shareholders are more concerned, and hopefully that will have an even more moderating effect," he added.

In a presentation accompanying the report, Trumka and other union leaders urged investors to press companies for more disclosures like the ratio of CEO pay to average employees.

The study by the AFL-CIO, a federation of 56 unions that represent more than 12 million workers, reviewed the pay for the chief executives of about 300 companies in the Standard & Poor's 500 index that so far had disclosed 2011 compensation in proxies filed with the U.S. Securities and Exchange Commission.

The results were generally consistent with surveys done by private-sector firms.

Total pay as reported in company "summary compensation tables" rose by 2 percent in 2011 compared with a 24 percent gain the prior year, according to a survey of about 225 companies in the Fortune 1000 that filed proxies by late March, Frank Glassner, partner of Meridian Compensation Partners, said.

Compensation growth slowed amid the flat financial performance of many companies because boards of directors have added new measures to link executive pay more closely with actual results, Glassner said. "Pay for performance is starting to be engaged," he said.

Also, "say on pay" votes like the one at Citigroup, though only advisory, are adding public pressure for more corporate responsiveness, Glassner said.

The AFL-CIO study also analyzed how large mutual fund families vote on pay questions. As major shareholders, the firms often decide the outcome of proxy contests, yet rarely discuss their voting. As a result, the regulatory filings they make each summer provide a rare window on their thinking.

Among 40 fund firms last year, the median level of support for "say on pay" questions was 12 percent.

BlackRock, the world's largest money manager with about $3.7 trillion of assets under management, was dubbed a "pay enabler" by union officials. BlackRock voted against management on "say on pay" votes just 3 percent of the time last year, the study found.

Some smaller firms voted with management even more often, including Harbor Funds and the fund unit of Goldman Sachs Group . Both opposed only about 1 percent of "say on pay" questions.

Officials of BlackRock, Harbor and Goldman Sachs did not respond to questions.

The fund company most likely to vote against management on "say on pay" questions was Federated Investors, which opposed 74 percent at companies in which it voted.

Federated declined to comment.