The €377bn Dutch asset manager APG has issued remuneration guidelines for the European listed companies in which it is invested with the view to creating long-term value.
It said it would begin to engage with boards and their remuneration committees to encourage a balance between the efficient operation of assets and the efficient allocation of capital.
APG – asset manager for the €325bn civil service scheme ABP and the €40bn pension fund for the building sector Bpf Bouw – said remuneration policy was an integral criterion for its portfolio managers’ investment decisions.
APG said, rather than focus on maximising profits over the short term, it wanted to aim for long-term value creation, in order to better meet its clients’ liabilities.
It called for a stable and consistent pay level, corresponding with a company’s business strategy, or a robust business case, taking a firm’s risk profile and risk appetite into account.
It also said it favoured remuneration policies that encouraged executives to accumulate shares in the company over time, including for some time after they left a company.
The asset manager said companies should consider non-financial measures, such as customer satisfaction, human capital, health and safety and sustainability, for long-term value creation as well.
Pay policy, it argued, should be closely linked to the fundamental value drivers of a company, rather than on total shareholder return.
APG added that it was concerned about overly complex incentives – or incentives that seem vulnerable to manipulation or corporate activity to improve payouts – and suggested the selection of peer groups against relevant criteria to counter this risk.
The asset manager also indicated that it would oppose very high payouts, such as high level awards, uncapped arrangements or high multiple share plans.
APG said it expected an improved engagement process with companies would free up time for other important aspects of corporate governance, such as board structure and appointments, as well as corporate performance and sustainability.
It added that individual executive pay levels were particularly important where there were doubts over shareholder alignment, effective governance or corporate disregard to social responsibilities.
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