The United Nations-supported Principles for Responsible Investment (PRI) is collaborating with its sister organisation the UN Global Compact for corporate responsibility on a project examining how investors can be more long-term in their holdings of shares and how companies can make themselves more attractive to those that do. Speaking at the 2013 PRI Academic Conference in Paris last week (Friday 15 November), Helene Winch, Director of Research & Policy at the PRI, said the organisation was working with a number of leading companies that are signatories to the Global Compact to explore the subject and look at what market mechanisms might work for promoting long-term investment. The PRI has outlined long-term investing as a priority area for research and policy lobbying and Winch said that investor holding periods and debates around loyalty shares were being looked at in the investor/corporate long-termism project, as are the timeframes over which executive bonuses are calculated. Winch was speaking on a panel about compensation and corporate social responsibility. She was proceeded by Frédéric Samama, Deputy Global Head of State Entities Coverage at Amundi Asset Management, France’s largest funds house, who presented research from Amundi on loyalty warrants for long-term shareholders that kick in after three years of holding and have three years to be exercised. Winch said the PRI/Global Compact project followed on from discussions by UK pension funds hosted by their trade body, the National Association of Pension Funds, in the UK during 2012, which RI reported at the beginning of this year.Those recommendations included company directors being made to invest in shares and hold on to these and any stock grants for a minimum of ten years, whether or not they are in post. For that report, the NAPF allied with some of the country’s biggest institutional investors, including Hermes Equity Ownership Services (EOS), the BT Pension Scheme, RPMI Railpen and USS Investment Management. The organisations updated their findings this week into five new principles on executive pay.
At the PRI Academic Conference, Winch, the former Head of Policy at the BT Pension Scheme, said asset owners were coalescing around certain tenets on executive pay. One, she said, was that director bonuses should be based around long-term allocations of company shares, not share options. Another, she said, was that for many investors even a three-year time horizon for executives holding on to shares was deemed to be too short. Importantly, she noted that pay schemes at companies needed to be understandable for both investors and companies: “That might seem a strange thing to say, but executives we’ve spoken to quite regularly don’t understand their own remuneration packages and say that what motivates them primarily is not their bonus structure.” Finally, she said bonuses needed to clearly reflect business performance, that companies and investors had to talk much more on pay issues before remuneration votes took place, and that investors also had to ensure they could put long-term ESG factors into the key performance indicators (KPIs) of their own investment staff.
The PRI issued an initial document in 2012 on Integrating ESG issues into Executive Pay
Reference Link to separate academic paper on loyalty shares (not related to the Amundi research)