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Private investors are being urged to influence shareholder votes at companies they own indirectly – through their pension funds and individual savings accounts (Isas) – as opposition to executive pay awards intensifies.
This week, Aviva shareholders staged the biggest revolt over executive pay at a FTSE 100 company since 2009 with nearly 60 per cent of investors refusing to back a remuneration deal that would have further increased the £2.69m salary and bonuses package for chief executive Andrew Moss. It follows similar protest votes over pay at Barclays, Citigroup, Trinity Mirror and AstraZeneca – and comes as the Department of Business, Innovation and Skills is consulting on “Executive Remuneration and Shareholder Rights”.
But while fund investors have traditionally left it to managers to make decisions on shareholder votes, a new online campaign is allowing holders of pensions and Isas to demand that managers express their views.
Fairpensions, a charity that promotes “responsible investment by fund managers”, has launched a web tool called “Your Say on High Pay”, which enables investors in managed funds to generate
emails to the managers – calling on them to vote against high pay and bonuses, and account for their actions.
At present, the vast majority of fund managers do not even tell their investors how they use their votes. Research by Pirc, the corporate governance advisory service, has found that only 15 per cent of managers – 27 of the 175 who have signed up to the UK Stewardship Code – comply with this requirement or explain why they refuse to.
I am writing about the problem of high pay and bonuses at companies in my fund. I urge you to vote against excessive executive remuneration and rewards for failure this year.
In particular, I would like you to ensure that the voting rights are used to oppose remuneration proposals that:
●have single performance criteria in executives’ incentive plans;
●include a transaction related bonus or “Golden Hello”;
●have moved the performance goal-posts on executives’ incentive plans; and/or
●provide for variable pay which is more than 200 per cent of executives’ base salaries’.
Please let me know some time later this year how the fund’s votes have been cast at companies where any one or more of these poor practices have featured in a company’s remuneration report.
Managers argue that, by choosing to buy a fund, private investors devolve all responsibility to them. “Investors invest in funds, not stocks, with us – so they do rely on us to attend to aspects of corporate governance on their behalf,” said Fidelity.
Richard Acworth, communications director at Henderson, argued that this was part of the fund manager’s job. “Investors place trust in the fund manager over which companies to invest in to ensure best possible value,” he said.
Many managers also claim that they can best serve investors’ interests through behind-the-scenes engagement with company directors, rather than confrontation at an AGM.
“Regular company meetings are an important part of the investment process,” said Emma Howard Boyd, corporate governance director at Jupiter. “Engagement and actively voting the shares we manage should be seen as integral to this process and is conducted on a confidential basis.”
Liz Murrall, director of corporate governance at the Investment Management Association, said this approach could resolve pay disputes before they got out of hand.
“Many fund managers will engage with companies on their remuneration structures before the vote to ensure that there is a clear link between pay and performance,” she said.
Some managers say they consider fund investors’ views, as a matter of course. “We always listen to these views,” said M&G. Jupiter said: “We would welcome any comments they may have on particular issues that concern them.” Fidelity and Henderson said investors could contact their corporate governance teams by phone or in writing.
But campaigners say more needs to be done. The UK Individual Shareholders Society (ShareSoc) has long called for substantial reform of the broker nominee account system to allow direct equity investors and Isa holders to use their votes. For now, fund investors can only “go to the AGM and speak; write to the chairman; or, if there’s still no action and it is good case, ask ShareSoc to give it some publicity”.