The UK’s fund management industry body has written to every FTSE 350 company warning that investors will vote down bosses’ pay packages if listed firms do not follow new, tougher guidelines.
The Investment Association (IA), which represents fund managers who control £7.7tn in investments, has published new rules to push large listed companies to clamp down on excessive executive pay. The guidelines include provisions to prevent firms from inflating bosses’ salaries by giving outsized pension contributions, and requiring that firms strengthen their ability to claw back performance-related pay.
The rules are not legally enforceable by investors against companies or executives, but they are used by large shareholders as a guide when they vote, including on pay, at company meetings.
Andrew Ninian, the IA’s director of stewardship and corporate governance, said: “Companies need to demonstrate more robustly the link between pay and company performance. If they don’t, they should brace themselves for more shareholder revolts in 2019.”
Surging executive pay has sparked calls for caps on the ratio of chief executives’ salaries compared to average staff pay. Investors have faced significant criticism for their role in waving through pay packages seen as excessive, such as the £75m bonus awarded to Jeff Fairburn, the former chief executive of FTSE 100 house builder Persimmon. Fairburn was ousted last month over the pay furore following a public backlash. In the case of Royal Mail, a revolt of 70% of the shareholders was not enough to prevent multimillion-pound payouts to the chief executive, Rico Back, or his predecessor, Moya Greene.
The IA’s letter, signed by Ninian, urges remuneration committees to “consider the issue of fairness” as well as contractual terms when setting pay for executives, in a change from previous years.
Changes to the rules include stating that bosses must now be given pension contributions at the same rate received by the majority of the company’s workforce. As well seeking a stronger ability to claw back pay, the guidelines require that executives hold on to shares in the company for two years after leaving before they sell.
By the end of October, 61 companies had been added to a public register compiled by the Investment Association of shareholder revolts over pay, an increase of nine on the same period last year.
