Tag: NAPF

UK Pension Funds Raise Concerns Over Bonuses, Pay of Corporate Executives

board room chair

U.S. public pension funds are no stranger to using their sway as major shareholders to push for corporate governance changes.

U.K. pension funds have that same influence – and this week, they used it to call for new rules surrounding executive bonuses and pay.

The pension funds say that executive compensation should be linked to company performance.

Reported by EveryInvestor:

In a letter sent to the chairmen of FTSE 350 businesses the National Association of Pension Funds warned that 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 NAPF also set out some guidelines it wants to see reflected in the pay policies set through 2014.

These include 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 also criticised the use of peer group benchmarking where pay is set by comparing it to that of other executives from different companies. The NAPF believes this practice has contributed to the escalation of boardroom pay. It said boards should focus more on their own strategies and less on comparing themselves against their peers.

Ahead of the NAPF Investment Conference that opens in Edinburgh on Wednesday Joanne Segars, chief executive, NAPF, said shareholders were vocal last year and those companies that have failed to take a robust stance on boardroom pay should expect similar opposition this spring.

“Too many companies have allowed the link between pay and long-term business performance to weaken in recent years,” she said.

“Companies should keep executive base pay rises in line with the rest of the workforce, and those that deviate from that should have a good explanation ready. Bonus targets should be challenging and allied to the long-term growth of the business.

“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.

Read the letter here.

2nd Largest UK Pension Shifting Investment Powers Away From Trustees, Towards Experts

board room chair

The Universities Superannuation Scheme (USS) is making some major governance changes, as a plan is well underway to shift investment responsibilities away from trustees and towards experts.

Investment decisions that were previously made by trustees – such as strategic asset allocation – will now be the responsibility of investment staff.

However, trustees will still oversee the process.

From Investments & Pensions Europe:

The Universities Superannuation Scheme’s (USS) aim to remove the role of strategic asset allocation from trustees’ responsibilities is nearing completion, as its internal manager looks to more delegated responsibilities.

[…]

USS, with £41.6bn (€51.2bn) in assets, has been looking to amend its investment governance structure to shift more execution to experts and away from its trustee board.

Speaking at a National Association of Pension Funds (NAPF) conference on governance, USS chief executive Bill Galvin said the fund had taken some investment governance ideas from Canadian and New Zealand pension funds.

[…]

“What we have been working really hard on is delegation to the right level of the organisation, where experts are making decisions within clearly defined parameters.”

He said the trustees’ investment sub-committee still owned the detailed strategic allocation but added that this would be passed on to USSIM, with the committee taking charge of the reference portfolio,

“The critical thing is complete transparency about decision-making in the in-house asset manager, and that is overseen by the investment committee,” he said. “But the decisions are delegated.”

USS chief executive Bill Galvin also vocally wondered whether UK trustee boards could adequately run pension systems. From IPE:

He criticised the current legal requirements for UK pension trustees as “inadequate” and said the Trustee Toolkit – TPR’s qualification to sit on a trustee board – was fairly minimal in the context of EU legislation for fit and proper persons.

The USS chief also questioned whether UK’s trustee boards had the range of capabilities required to run pension schemes in today’s environment.

He said schemes’ focus for member and employer representation on trustee boards was a strange concept, whereas other international models focused more on capability.

“I find the issue of representation really challenging,” he said.

“It must be very difficult for someone put on a trustee board [to assume] they will represent members. How do you do that? How do you know? Do you assume what you want is what they want?”

Galvin praised the Ontario Teachers’ fund, where trustee members all fit a jointly agreed job description between trade unions and sponsors.

The Universities Superannuation Scheme covers employees at many UK universities. It manages $63 billion in assets.