Federated Investors Inc objected to hundreds of executive pay packages in last year's corporate proxy voting, a rarity in the don't-rock-the-boat mutual funds industry.

A review shows ambiguities in Federated's record as a shareholder activist, however. For one thing, at the same time Federated mutual funds rejected pay plans at the likes of Bank of America Corp , Apple Inc and General Electric Co , they backed directors who set the pay.

Also, labor leaders do not view Federated as an ally in their efforts to reign in pay and other executive powers, since the funds also sided with management in controversial governance questions at companies such as Abercrombie & Fitch Co and Nabors Industries Inc .

Federated's voting seems almost schizophrenic, said John Keenan, corporate governance analyst for labor union AFSCME.

Executives at family-controlled Federated would not discuss voting by the funds, a spokeswoman said.

Federated's outlier stance on proxy voting reflects how even the most striking votes may have just a minor impact on CEO pay under new rules passed after the financial crisis.

The goal was to give shareholders more oversight. Under so-called Say on Pay provisions of the 2010 Dodd-Frank financial reforms, most companies must hold advisory votes on executive compensation at least once every three years.

The rule became effective last year and most companies got stamps of approval. Of 2,481 companies in the Russell 3000 index, through October only 38 failed to get a majority of shareholder support on pay, according to New York research firm GMI. Another 157 got less than 70 percent approval.

Many of these companies now face pressure to make changes, since proxy advisory firms have promised closer scrutiny in 2012 of companies that did not get solid majorities last year.

Figuring out what changes to make may be difficult, however. About 40 percent of large investors will not give feedback, even in private, about their votes or the changes they might like to see, said David Drake, president of Georgeson Inc, a proxy solicitation firm. Some wish Federated were more forthcoming about the warning its votes seemed to send on pay.

If Federated is going to throw a yellow flag, Federated should at least describe what the foul is, said Richard Susko, a partner at Cleary Gottlieb Steen & Hamilton. It represents corporations on compensation and governance matters.

CRISIS BLOWBACK

Mutual fund firms control about a quarter of U.S. stocks, but like Federated, most will not discuss specific votes, making their annual disclosures a rare window into their oversight.

At Reuters' request Jackie Cook, principal of Vancouver research firm Fund Votes, reviewed the voting of 28 Federated mutual funds during the year ended June 30. They opposed executive pay 83 percent of the time at S&P 500 companies, voting against the plans in 346 of 416 contests.

In contrast, most mutual fund firms backed 80 percent or more of pay plans, Fund Votes found. That support was in line with recommendations of proxy adviser Glass, Lewis & Co.

In securities filings Federated said it will vote against compensation proposals that replace existing stock incentives with those having more favorable terms and against plans that fail to spell out maximum compensation levels. Frank Glassner, head of Veritas Executive Compensation Consultants, said the details do not explain the votes. Federated has given a philosophy and not a methodology, he said.

LYING LOW

Federated makes an unlikely executive pay critic. Its cofounder and chairman, John Donahue, graduated from West Point in 1946, then flew military bombers and began Federated in 1955 with friends from Pittsburgh's Central Catholic High School.

Donahue is now 87 years old and his 62-year old son Christopher is chief executive. The company was so traditional it prohibited women employees from wearing pants on the job until 2000. That was also the year Federated put up a big sign on its downtown headquarters, although it is now one of Pittsburgh's largest financial firms.

Despite its low profile, Federated has a history of shareholder activism when it comes to compensation. A 2006 study by AFSCME and others ranked Federated as the third toughest pay constrainer among 18 fund firms, based on their voting on measures such as management-sponsored pay resolutions. (AFSCME and other unions have been clients of Fund Votes, as have shareholder groups and academics.)

Proxy votes are overseen by a Federated funds board that includes both Donahues, plus nine other trustees who would not comment for this article. John Conroy, a former funds trustee who retired early least year before most pay votes were cast, said the board at the time had no particular agenda on executive pay, but studied proxy matters closely.

We call them as we see them, Conroy said.

Federated shares had fallen 34 percent in the 12 months ended January 10, compared with a 16 percent decline for an index of peers. The company has been dogged by heavy reliance on money market funds at a time when low interest rates forced it to waive fees.

Unhappy investors have pressed for a bump in the dividend that has been 24 cents per share in recent quarters. Christopher Donahue has resisted, but says his family's ownership helps him keep investor interests in mind.

I grew up with nine sisters, he said at a conference in June. I think they're all stockholders and I like going to Thanksgiving dinner, too.

MORE LEEWAY

Federated's tough set of pay votes contrast with its own practices. Federated has two share classes of which only those held by a Donahue family trust had voting rights at its annual meeting. As a result, holders of Federated's publicly-traded Class B shares did not vote on John Donahue's $2.7 million 2010 compensation, or the $3.6 million paid to Christopher Donahue.

Another feature of Federated's structure also could play a role in its proxy voting. Many fund companies have an incentive to vote with management because the firms also seek to manage corporate retirement assets. But at Federated, those assets stood only at $2.5 billion, according to the latest survey by PlanSponsor magazine, compared with Federated's $352 billion in total assets at September 30.

Such a small retirement business would give Federated the flexibility to vote its heart on pay, said University of Michigan professor E. Han Kim. Although it might anger executives with its pay votes, Kim said, Federated has nothing to lose.

Even as they were swatting at pay plans, Federated funds opposed only two percent of corporate directors in the last proxy season, Fund Votes found. Many other shareholders also went easy on directors, according to ISS, which advises institutional shareholders on proxy voting. It found only 45 directors at U.S. companies who lost elections last season, roughly half the 91 directors defeated in 2010.

Behind the trend was the new ritual of Say on Pay. Many negative votes - such as Federated's - did not send the harshest possible message on compensation. Rather, said Georgeson's Drake, the votes were like a pressure release valve.

(Reporting by Ross Kerber; editing by Jed Horowitz and Andre Grenon)