Our views

Annual binding votes could force shareholders to think shorter term


Mike Fox, Head of Sustainable Investments

 

1 September 2016

Royal London Asset Management has long campaigned for more to be done to ensure that executive pay remains tied to long-term, sustainable business performance, as good corporate governance is vital to the success and sustainability of UK companies. However, we disagree with the High Pay Centre report published today on how these issues should be approached. We believe that imposing an annual binding vote could be detrimental, forcing shareholders to focus on shorter performance periods when evaluating whether performance has merited the remuneration paid to senior executives. 
Remuneration policies need to be simplified, with more straightforward structures and clearly defined performance related metrics. Discretion also needs to be used to adjust the results of outcomes to reflect the overall business, rather than relying on the formulaic outcome. For example when Persimmon’s share price quadrupled over the last four years, we still thought that management’s remuneration was disproportionate, as the company’s good performance happened in the political and economic context of a national housing shortage and Government support for the sector.

Royal London Asset Management has long campaigned for more to be done to ensure that executive pay remains tied to long-term, sustainable business performance, as good corporate governance is vital to the success and sustainability of UK companies. However, we disagree with the High Pay Centre report published today on how these issues should be approached. We believe that imposing an annual binding vote could be detrimental, forcing shareholders to focus on shorter performance periods when evaluating whether performance has merited the remuneration paid to senior executives. 

Remuneration policies need to be simplified, with more straightforward structures and clearly defined performance related metrics. Discretion also needs to be used to adjust the results of outcomes to reflect the overall business, rather than relying on the formulaic outcome. For example when Persimmon’s share price quadrupled over the last four years, we still thought that management’s remuneration was disproportionate, as the company’s good performance happened in the political and economic context of a national housing shortage and Government support for the sector.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.