Crackdown on fat cats wages: New document suggests cap on big bonuses
A MAJOR UK shareholder has called for a cap on pay for bosses of top companies as pressure mounts for an overhaul of boardroom packages.
Hermes Investment Management, set up in 1983 to manage the BT pension scheme and which manages funds worth about £24billion, is distributing a document with the ground-breaking proposal among the chairs of FTSE 350 firms.
It is believed this is the first time a ceiling on overall pay, as well as individual components, has been proposed by such a leading fund manager.
Dr Hans-Christoph Hirt, co-head of Hermes’ stewardship arm EOS, said: “There are significant problems with executive remuneration in the UK, including the complexity of packages, a weak link between pay and corporate performance and in a number of cases excessive quantum. The public has lost trust about the governance of executive pay.
“Now is the time for investors to articulate their expectations and work together with companies to reform executive remuneration ahead of the voting season 2017.
“We want to see simpler packages, lower variable pay, higher shareholding requirements and stronger accountability of remuneration committees.”
There are significant problems with executive remuneration in the UK
Under its proposal, firms would publish the figure its chief executive’s pay would not exceed, which would then be discussed with investors.
Hermes also believes the views of company employees should be taken on board by remuneration committee chairs, and proposes that bosses of blue chip companies should hold shares worth five times their base salary.
Prime Minister Theresa May wants reforms such as worker and consumer representatives being appointed to boards, while last month the business, innovation and skills select committee launched an inquiry on corporate governance including executive pay.
Nigel Wilson, the chief executive of leading stock market investor Legal & General, described the current approach to executive pay in UK-listed companies as “not fit for purpose”.
L&G said the average pay ratio between FTSE100 chief executives and employees had jumped from 47:1 in 1998 to 129:1 last year, but despite growing disparity “there is little evidence that ratcheting up executive pay leads to better company performance”.