Our views

Executive pay investigation could deliver wrong answers to right questions

Mike Fox, Head of Sustainable Investments

16 September 2016

The Business Innovation and Skills (BIS) Committee investigation ito executive pay and corporate governance is long overdue. However, we are concerned that the outcome could deliver the wrong answers to the right questions.

While we support the investigation we are concerned it could lead to support for a ‘pay ratio’ which we believe is a crude measure that risks tarring well governed firms with the same brush as those with a flagrant disregard for what is acceptable.  

As a shareholder, we believe that companies should focus more on how pay is structured and how remuneration committees operate. We also believe that the changing attitudes of shareholders and the votes they cast, not government legislation, will ultimately change boardroom behaviour.

Firms should view this as a wake-up call, not just to tackle issues surrounding pay, but to renew their governance efforts in other key issues such as succession planning and future proofing of businesses. We believe a pro-active and considered approach to governance is a clear part of ensuring long-term value is delivered to shareholders.

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.