UK pension funds: exec pay too high; fund manager pay part of the problem: survey

A third say asset manager pay means ‘stewardship’ is meaningless.

A majority (87%) of UK pension fund members that responded to a survey by the Pensions and Lifetime Savings Association (PLSA), which represents £1 trillion in assets for 1300 retirement schemes, say corporate executive pay is too high, while an equally significant 60% say high levels of pay at the asset managers they hire, and which generally carry out corporate governance on their behalf, is what is preventing them from properly holding companies to account on the issue.
A third of respondents (35%) said asset manager pay levels diminished the ability of funds houses to realistically comply with their stewardship responsibilities signed up for within the UK Stewardship Code, which commits managers to vote and engage with the companies they invest in.
A high 85% of the responding PLSA members said the gap in remuneration between top management and staff at companies is also a source of concern. The survey was compiled by PIRC and published as part of the PLSA’s AGM Season Report 2016, and the number of pension funds that responded to the survey was 56, the PLSA said.
The pension fund disgruntlement follows the release this week of the UK government’s new Green Paper on Corporate Governance. which majors on potential regulatory revisions to shareholder power to set pay, stakeholder involvement on boards, and the governance of private companies, with a view to legal changes in 2017.Luke Hildyard, Policy Lead for Stewardship and Corporate Governance at the PLSA, said: “We will shortly be publishing guidelines encouraging our members, and their asset managers, to take a tougher line on the re-election of company directors responsible for executive pay practices.”
The PLSA’s report also analyzed remuneration-related shareholder votes at company AGMs, acknowledging, however, that levels of dissent did not change dramatically in 2016.
It also found a recalcitrance among FTSE100 companies to subsequently acknowledge problems when significant pay votes went against them. The report found that of the top five (in terms of such a shareholder dissent) none “were prepared to acknowledge they had their approach to remuneration wrong in their subsequent statements to the vote”.
Those five companies ranked by the level dissent are: BP (61%), Smith & Nephew (57%), Shire (51%), Babcock (48%), and Anglo-American (48%).
Despite the remuneration votes, the PLSA report also highlighted that no significant votes had been identified against the reelection of the remuneration committee chairs who had set the controversial pay packages.
PLSA’s report was published on the back of a campaign in which the association wrote a letter to the Chair of every FTSE350 company raising awareness about the pay issue.

Read the RI comment: Paul Hodgson: Executive pay: make it simple, but don’t do what I say