ESG roundup: Citigroup pay plan, UKSIF on Natural Capital Declaration
GLOBAL - As the consultation paper by the UK Department for Business, Innovation and Skills (BIS) on a binding 'say on pay' approaches its 27 April deadline, excessive remuneration remains a concern for investors.
On 17 April, 55% of shareholders in the bank Citigroup voted against management or abstained on the company's executive pay plan.
Among those who voted against it were asset manager F&C, corporate governance research and advisory consultancy PIRC, the California State Teachers' Retirement System (CalSTRS), the Florida State Board of Administration (SBA) and the Ontario Teachers' Pension Plan in Canada.
George Dallas, director of corporate governance at F&C's governance and sustainable investment (GSI) team, said: "Although [Citigroup's] board is quite new, and important reforms have been introduced, the team remains disappointed with the highly subjective and often lax performance conditions.
"We are particularly concerned about the overly generous retention awards to senior executives, as these appear to be attempting to make amends for the downturn they experienced in previous years' pay.
"The GSI team believes that these retention awards undermine the spirit of variable pay."
F&C's GSI team also questioned Citigroup's decision to make long-term performance-based payouts in cash, as best practice for long-term awards calls for granting shares.
PIRC had recommended that shareholders vote against the bank's pay plan.
It said: "Many investors appear to have been angered by the bank's decision to increase compensation for its executives at a time when its income and share price have fallen."
It said the "Citigroup defeat" - early into only the second season of 'say on pay' votes in the US - could be compared with experience in the UK.
"Here we are into our 10th season of a mandatory advisory vote on executives pay," it said. "Only one bank - RBS - has lost the vote on its remuneration report, and no others have even come close, and RBS was defeated by UK Financial Investments.
"Many commentators have speculated that Barclays [at its AGM on 27 April] may face a sizeable vote against its remuneration policy, and possibly also against the chair of its remuneration committee."
But PIRC does not expect Barclays to face an actual defeat.
The consultancy said: "Recent voting behaviour suggests many UK asset managers have been reluctant to challenge the banks over pay. A number of major asset managers did not oppose any of the banks' remuneration reports last year. In addition, last week's 'concession' allows shareholders a way out of an oppose vote if they want it."
It added, however, it "certainly felt like" sentiment had shifted.
"In addition to the Citigroup defeat, this year has also already seen Stephen Hester waive his share award and Lloyds apply clawback to bonuses to take account of payment protection insurance mis-selling," PIRC said.
"What was acceptable in pay at the banks three or four years ago is now potentially explosive."
F&C's GSI team is currently reviewing the Barclays proposal.
Dallas added: "The debate has moved decisively into relatively unfamiliar territory for the investor community - the question of fairness of executive pay.
"Whereas historically F&C and most fellow governance advocates have argued their case in terms of alignment of incentives rather than absolute pay levels such as quantum, serious questions are now being raised about the reputational risks banks face in this regard."
In other news, the UK Sustainable Investment and Finance Association (UKSIF) announced its support for the Natural Capital Declaration as a key investor initiative for the forthcoming United Nations Conference on Sustainable Development, Rio+20.
The Natural Capital Declaration is a statement by the financial sector on its commitment to work towards integrating natural capital criteria into financial products and services.
Penny Shepherd, UKSIF chief executive, said: "In the 20 years since the Earth Summit, sustainable investment and finance has moved from the margins to the mainstream.
"Today, the UK is widely recognised as a global hub for innovation in sustainable and responsible financial services.
"Rio+20 offers an important opportunity to advance the concerted action needed by financial institutions, business and governments to support the transition to a sustainable resilient economy."
Kookie Habtegaber, coordinator for the Natural Capital Declaration, said: "Financial institutions, including investors, have an inherent economic interest in helping secure the protection and sustainable use of natural capital, which underpins economic growth and therefore also the growth of businesses that investors service.
"Furthermore, investors and other financial institutions have considerable indirect ecological footprints through their customers and directly through their purchasing decisions, and they can also provide some of the financial tools required to support a transition to sustainable development."