The New York City Employees Retirement System and New York City Teachers Retirement System put forward a resolution requiring that stock options granted to senior executives as part of their compensation should be performance-based. According to the Council of Institutional Shareholders, the resolution was passed by 18% of the votes.
The pension schemes' pro-active stance is the exception to the rule in the US, according to corporate governance observers such as Hermes Pensions Management. Hermes claimed that US investors have tended to let company general meetings go by without exercising their rights as shareholders. This apathy has resulted in significant rise in US executive remuneration, according to US commentators such as Graef Crystal.
The New York pension schemes qualified the resolution with the following statement: "The bull market of the 1990s set an unprecedented record of rewarding top executives of a number of low-performing companies with huge cash payments from the exercise of stock optons in a rising market.
"The spread of stock options may be distorting the economy, contributing to a temporary overvaluation of equities, encouraging shortsighted managerial decisions and storing up problems for companies in the future. As a result, institutional investors increasingly are urging that, to align the interests of executives and stockholders, stock options be linked to real and superior performance."