How and Why BlackRock Influences the Executive Compensation Packages of Major Companies

Posted: August 10, 2021

BlackRock is famously the world’s largest asset manager with just under $7 trillion worth of assets under management across equity, fixed income, cash management, alternative investments, and real estate. As is common, large amounts of money bring large amounts of influence. BlackRock owns major positions in hundreds of companies including some of the largest in the world. Let’s take a look at how BlackRock uses their positions to influence executive compensation packages around the world. Who actually decides executive compensation? Many people look at the large compensation packages of CEOs and question the rationale. However, determining who is approving these pay structures is more complicated than one may expect. Most people assume that shareholders of the company decide how much the executives are getting paid by voting on “say on pay” votes. This is actually a misconception. In reality, Boards of directors, their Compensation Committees, and compensation consultants design, structure, and approve compensation plans. It’s not until after a compensation package is created that shareholders are given a “say on pay” vote. However, the main purpose of this vote is to gauge feedback from those shareholders rather than get their approval. Even if shareholders overwhelmingly vote against the compensation package, the Board of Directors still has the power to approve the package anyway. That being said, it’s still up to shareholders to decide who sits on the Board of Directors for a company. As a major shareholder in a number of publicly traded companies, this is where BlackRock comes into play. Why does BlackRock have so much influence? Since BlackRock is such a massive asset manager and is a major shareholder in so many companies, they have the power to vote on many different company’s Boards of Directors. This gives them slight control over who is sitting on the Board of Directors at hundreds of companies. How these board members choose to vote will ultimately determine the compensation packages of many corporate executives in the United States. Luckily, BlackRock has taken it upon themselves to try and get as many forward-thinking people on as many Boards as possible. Taking a stand for environmental issues In June of 2021, BlackRock voted against 255 directors due to a failure to act on climate issues. This number is almost five times bigger when compared to 2020’s number, where they voted against 55 directors. They also chose not to support the management at 319 companies for climate-related reasons. This number is also up drastically from 53 in 2020. It’s clear from these votes that BlackRock is holding many executives accountable for their lack of implementing environmental policies. Taking a stand for diversity Another point of emphasis for BlackRock has been pushing for more diversity on boards. In 2021, they voted against the re-election of 1,862 directors at 975 companies due to a lack of board diversity. 975 is an incredible number of companies that BlackRock is able to influence and is almost double the number represented by the entire S&P 500. So far this year, BlackRock has been using their influence to ramp up the pressure on public companies to be more equality and environmentally focused. Their hope is that this will incentivize companies to put these issues at the forefront of their mission, and the result is what we've observed in recent months and years: BlackRock as a single entity has noticeable sway over the compensation packages of America's executives. To learn more about maximizing executive compensation, visit our Contact Page, or contact us directly by email at or by phone at 415-618-6060.