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.