Investors ‘will not decide on executive pay’

By Erikka Askeland
Published on Sunday 29 January 2012 00:00

OTTO Thoresen, head of the Association of British Insurers (ABI), has dashed hopes that institutional investors will police soaring levels of pay among Britain’s biggest companies.

He warned that ABI members – who include most of the major institutions – would not get involved with the “micro-management” of individual directors’ remuneration despite expectations among policymakers that investors would play a major role in tackling “fat cat” pay in future.

Business secretary Vince Cable last week unveiled a raft of measures to clamp down on executive rewards, including a binding vote for shareholders on companies’ remuneration policies. Currently such votes are only advisory.

Thoresen said ABI members would draw a “clear line” and leave boards to decide how much top staff are rewarded.

“For shareholders to get in discussions around individuals within firms or individual amounts [of pay], that gets to micro-management,” he said. “We would say the board has a very clear responsibility to oversee the running of the business. That is where there has to be a clear line where shareholders have a role but the board has the strongest role. I’d stand by that quite strongly.”

Thoresen’s comments are likely to disappoint campaigners against City excess, whose hopes were raised last week when Cairn Energy withdrew a £2.5 million share windfall due to be awarded to its chief executive Sir Bill Gammell.

Later in the week there was anger when it emerged that Royal Bank of Scotland boss Stephen Hester would be awarded nearly £1 million in bonus. Yesterday it was reported that the bank’s chairman, Sir Philip Hampton, has given up a £1.4m shares reward he was due later this year.

Although shareholder groups such as the ABI and PIRC will continue to issue advisory documents when they believe there are governance problems in certain companies, experts believe the Cairn case is likely to be an isolated incident.

Thoresen said the ABI would continue to hold discussions with the Department for Business, Innovation and Skills over the Cable’s proposals.

But he said the Business Secretary’s emphasis on transparency would serve to help investors have better relationships with the company boards as this would bring discussions, which are often held behind closed doors, into the open. “There is much that does go on privately that is put to AGMs than would otherwise be the case,” said Thoresen.

“We believe the improved transparency that can come through some of the proposals will lead to more clear signalling in the voting that goes on. That will lead to improved and more effective engagement of the boards of companies.”

In a speech to the Insurance Institute of London, Thoresen said the group had increased the number of “red top” warnings it had issued to its members to record levels last year. He said these are used to “highlight concerns” about corporate governance – including remuneration – to fund managers.

Thoresen also stressed that the ABI had written to the boards of the UK banks in December warning them about making excessive payments.

He said: “We said the reason we were uncomfortable with remuneration policy in the banks is we thought the balance had got out of kilter, that too much was going to executives and employees against the amount that was going out in dividends to shareholders.”

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e2toe4

Sunday, January 29, 2012 at 12:03 PM

He is right in the sense of not micro managing companies from offices and kitchen tables miles away. +++++++++++++++ The Government's point, recently, that any atempt to influence, or even veto a pay award, could see the CEO and much of the Board walk out is correct----- IF an investor vetoes, or even heavily criticises a plan by the Board then those people have been the subject of of a Vote of confidence, and failed it, and so must walk. +++++++++++++++++ It requires legislation to key in remuneration to clear, but long term, targets (tieing to annual or even in some cases in the last few years quarterly milestones is too short termist) CEO and senior executive remuneration needs to be largely in shares NOT cash and for the lock-ins to extend over many more years..... to replicate that mentality and philosophy in the German medium sized companies that has been so conspicuously successful in comparison..

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harlequin

Sunday, January 29, 2012 at 10:35 AM

If people like Thoresen do not accept that influencing executive pay is part of their remit,then they are failing in their fiscal and social responcibilities and are just as self-centred and self-serving as many overpaid average talented directors,and the politicians will be required by public demand to bring in a new tax band.

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