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UK pension funds welcome proposals on executive remuneration

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  • UK pension funds welcome proposals on executive remuneration

UK - Proposals to grant institutional investors in the UK a legally binding voice on executive remuneration have been welcomed by pension fund representatives, with one local authority scheme suggesting such measures should already be in place within banks partially owned by the government.

However, Dudley Mead - a Conservative councillor in the London Borough of Croydon and chair of the authority's pension committee - said remuneration had to be viewed on a case-by-case basis and warned that the proposals could drive UK-domiciled companies from the country.

The proposals, announced by the Department for Business, Innovation and Skills (BIS), come as part of a wider review of the way companies' annual reports are compiled.

They aim to give shareholder votes more legitimacy, while allowing input on pay policies already in place overseas and in Europe, the department said in its discussion paper.

It warned that opposition to executive pay deals could result in repeated shareholder votes, increasing costs for companies, as they are forced to put packages to investors repeatedly.

"However," it said, "this could have the effect of placing greater pressure on the company and shareholders to work together on an acceptable package at the outset."

Mead told IPE he sympathised with the BIS's position, but said it was important to "take every case by its merits".

Referring to UK business secretary Vince Cable, Mead said: "If he is specifically talking about clearing banks in relation to Lloyds and RBS - where the government has a large stake - they should be controlling [payments] better anyway."

The councillor also stood by Croydon Pension Fund's previous opposition to bonus payments at high street bank Barclays in light of lower-than-expected dividend payments.

However, referring to two remaining players in the UK banking sector, he said that, in light of "very good" results, the proposals posed a risk to their future in the UK.

"The great danger with Standard Chartered and HSBC is that, if you push them too far, they will change their domicile at a great loss to the taxpayer," he said.

Commentators such as the National Association of Pension Funds (NAPF) and FairPensions saw the proposals in a more positive light, praising attempts to do away with the complexity surrounding remuneration.

Louise Rouse, director of engagement at lobbying group FairPensions, said shareholders often felt powerless to bring about change to pay packages.

She told IPE: "At the moment, remuneration is extremely complex, and only the largest investors have sufficient resources to dedicate a significant amount of time to analysing those packages in detail."

Rouse added that a binding vote would result in an "implicit challenge" to shareholders to end what she viewed as "excessive" pay deals.

She conceded, however, that not many remuneration packages would have been struck down at the most recent round of AGMs had binding votes been in place.

The NAPF's head of corporate governance David Paterson, meanwhile, said it was important for packages to be "carefully explained if investors are to hold management to account", and that complexity surrounding such deals posed a problem.

Paterson said the new rules would not damage companies in the long run.

"It is in all our interest that companies be successful," he said. "Executive directors should be rewarded based on their performance and the value they bring to the business. Failure should not be rewarded."

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