Executive pay bears no connection with company performance, participants at a recent summit on the topic were told.

The Executive Pay Summit: Governance, Responsibilities and Excess, convened by the Church of England Pensions Board (CEPB), took place last week online with delegates including  asset owners, regulators, FTSE100 remuneration committee chairs and other stakeholders. The summit reviewed the state of executive pay and considered how to solve the problem.

Adam Matthews, chief responsible investment officer at the CEPB, who chaired the summit, said: “We convened it with fellow asset owners because we know the current executive pay system is broken, and not only enables but protects excess with a pretence of accountability.”

The summit explored the challenges of executive pay from the perspectives of various stakeholders, with speakers discussing potential solutions that may alleviate the tensions in stakeholder relations that it causes, and which are being exacerbated against the backdrop of a cost-of-living crisis and economic challenges.

On the summit’s agenda was consideration of how chairs of remuneration committees could be better held accountable, as well as whether a review of the shareholder rights of asset owners was needed, and whether investors need a binding, rather than advisory, vote on the outcomes of pay policies.

Matthews said that the results of votes on remuneration at company annual general meetings (AGMs) had often been ignored.

It was Simon French, managing director, head of research and chief economist at Panmure Gordon, who said that empirical evidence from a number of studies and different countries had found no link between executive pay and company performance.

He did, however, caution that this was not to be confused with the strong evidence of a link between structuring incentives and underlying performance.

French said: “Furthermore, the period in which executive pay has decoupled quite strongly globally has been associated at macro level with declining productivity.”

He added: “In terms of the UK, there have been concerns over the health of capital markets, and the publication of a series of government reports. But remuneration and the attraction of highly productive executives does not feature very strongly in those reviews.”

He said valuations, liquidity and other parameters were greater impediments to growth in performance than any failure to attract high-performing executives.

Ola Peter Gjessing, lead investment stewardship manager at Norges Bank Investment Management, said that executive pay had reached unhealthy levels, especially in the US.

“We typically suggest that boards consider a simpler alternative to long-term incentive plans – deferred equity with a five-year time horizon or longer,” he said. “This is a more transparent and maybe more cost-efficient way of aligning CEOs with Bshareholder interests.”

He also said that some remuneration plans he had seen raised doubts as to how important cost considerations had really been.

“Performance conditions used are sometimes enablers of pay outcomes that are hard to defend,” he argued. “Do we really want the gearing embedded in plans through the use of long-term targets? Would a flatter pay-off profile provide better bcost control without losing motivation?”

Other speakers at the summit included Angeli Benham, senior global ESG manager at Legal & General Investment Management; Diandra Soobiah, head of responsible investment at the National Employment Savings Trust; Aeisha Mastagni, portfolio manager at the California State Teachers’ Retirement System; and Janet Williamson, senior policy officer at the Trades Union Congress.

The summit is to be reconvened next February as investors enter the proxy season, when many publically traded companies host their AGMs.

Progress on carbon emissions

Meanwhile, the Church said that carbon emissions for its buildings fell to 410,000 tonnes in 2021, a decrease of 5,000 tonnes on the year before, despite buildings being open for more of the year than in 2020.

The figure, from its national Energy Footprint Tool, includes data from church schools, clergy housing, cathedrals, offices and, for the first time, travel-related emissions. The total was estimated from data gathered from 39% of churches and 68% of Church of England schools.

The Church has a target to meet net carbon zero by 2030.

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