UK pension fund association issues warning on corporate pay ahead of AGM season

‘Shareholder spring’ comes round again

UK pension funds won’t tolerate unjustified executive rewards when they come to vote at forthcoming company annual meetings (AGMs), warns industry body the National Association of Pension Funds (NAPF).
The NAPF has written to the chairs of all companies listed on the FTSE 350. It says companies that have failed to create a strong link between executive rewards and performance “should expect shareholders to repeat their concerns of spring 2012” – the famous ‘shareholder spring’ which saw numerous high-profile corporate scalps.
The NAPF has also set out the pay guidelines that shareholders “expect to see applied” in 2013 – including capping executive base pay increases at inflation and keeping them in line with the rest of the workforce. “Where this is not the case, companies should offer a sound explanation,” the NAPF asserts.
The NAPF, which represents 1,300 pension schemes with around £900bn (€1trn) in assets, will also take a strong line where companies compare their own executives’ pay to that at other firms, saying such “peer group benchmarking” has contributed to escalating boardroom pay.Boards should focus more on their own strategies and “less on comparing themselves against their peers”, the NAPF reckons.
“Shareholders were very vocal last year, and those companies that have failed to take a robust stance on boardroom pay should expect similar opposition this spring,” said NAPF Chief Executive Joanne Segars.

“Companies that have failed to take a robust pay stance should expect similar opposition”

“Our members will push back on executives who compare themselves with others to try to justify pay rises. So-called peer comparisons have been a major factor behind rising boardroom pay levels.
“The rules on executive pay are set to change with the introduction of a binding vote later this year. It is important that companies and their institutional shareholders work closely together to ensure the new rules deliver high standards.”

The NAPF and some of its largest members recently published a discussion paper arguing for a rethink on executive pay, suggesting that firms offer shares that are held for the long-term.