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Impact Investing

IPE special report May 2018

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Put directors' pay to the vote say pension funds

UK – Eight major institutional investors representing over 5% of the UK stock market and including a number of the UK’s largest pension funds, are asking companies to put their remuneration reports to a voluntary shareholder vote, in response to government indecision over whether to make such practice compulsory.

The institutions, which include the £28bn British Coal Pension Schemes, $165bn US pension fund CalPERS, the £22bn Universities Superannuation Scheme and Hermes Pensions Management, which manages around £50bn for the BT and Post Office pension funds, are to make the written appeal to over 750 of the UK’s largest quoted companies ahead of the forthcoming peak proxy-voting season.

The institutions say their message will be that the UK’s system of self-regulatory corporate governance requires a “best-practice solution” to address concerns about excessive pay structures for company directors.

David Morgan, chief executive of the British Coal Pension Schemes, comments: “We regard a company’s remuneration policy as a vital link in aligning the interests of directors and senior management with that of shareholders. Putting the report to the vote should be a routine and important part of the annual general meeting – particularly important where there have been changes to remuneration or controversial decisions during the year.”

The appeal is a direct response to a recent statement by UK Trade & Industry Secretary Stephen Byers that the government had yet to decide whether companies should be forced to put the pay deals of their boards to a shareholder ballot.

While the institutions say they recognise that companies operate within a fiercely competitive environment requiring flexibility on directors’ pay, they also point to a need for closer monitoring of incentive schemes where companies often have greater discretion in how they reward board members.

Such incentive schemes, the institutions say, should have a “strong link” to company performance.
“ Where there are concerns about the use of discretionary powers, prompt and effective action by shareholders is essential,” they add.

Investment managers Baillie Gifford and Gartmore along with the Co-operative Insurance Society, are also part of the supporting institutions.







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