One of the City’s biggest fund managers, Fidelity Worldwide Investment, has conceded that it does not have the clout to clamp down on runaway boardroom pay.
Dominic Rossi, global chief investment officer at Fidelity, which has £190bn of investments under its control, said it is impossible to put upper limits on executive pay, but that shareholders could force companies to improve the way big pay deals are linked to performance. “If you approach executive pay from the point of quantum, you are setting yourself up to fail,” he said.
Instead, Rossi said he had “deliberately steered away from that issue” and is focusing on encouraging companies to change the structure of their long-term incentive plans (Ltips) with a view to forcing stronger links between pay and performance.
He blamed US companies for inflating bosses’ pay in the UK. Remuneration consultants that advise UK company boards, he said, use US pay deals in the analysis they provide to advise on pay levels. Many US companies have one person with the title of chairman and chief executive – which is frowned upon in UK corporate governance rules – and Rossi said consultants should consider excluding any comparisons of individuals holding joint titles.
For the first time, Rossi said he had been involved in trilateral discussions between fund managers and pay consultants.
“We are going to have to focus here on governance and structure rather than on quantity,” he added.
Rossi is one of the few senior fund managers prepared to speak publicly about corporate governance and was providing an update on his campaign to push through changes to Ltips. These usually involve shares being issued to a director and only released after three years depending on performance. Rossi is arguing that rather than being allowed to sell shares after three years, directors should be required to hold them for another two years. In 2012, Fidelity argued that directors should also be required to hold “career shares” that they are not allowed to sell until they leave.
But, he said, he was being pragmatic in taking the current approach to extending Ltips, which when structured as three-year packages were an “oxymoron”.
He said he was making progress in making pay deals more long-term. At the start of 2013 only four FTSE 100 companies had a minimum Ltip shareholding period of five years. That total has now risen to 42, as companies such as Aviva, Compass Group and Imperial Tobacco have fallen into line.
He said some rival fund management groups were finding it difficult to support his campaign as their own Ltips do not comply with Fidelity’s proposals.
Some 40 companies now have holding periods of three years or less. Fidelity has been voting against the remuneration reports of companies which do not meet its requirements.
“There is still work to do, particularly with smaller companies, but we have come a long way in less than three years,” said Rossi.
He was also asked about the proposals by the Institute of Directors for more disclosure of fund manager pay. There is currently only very limited disclosure about fund managers’ pay – earlier this year, for instance, it emerged that bond fund manager Richard Woolnough at M&G, part of Prudential, was paid £17.5m last year. “The industry is moving in that direction,” said Rossi. But, he said, wide disclosure was not necessary. “If you did [demand greater disclosure], you’d have to demand it in all industries, including the media industry,” he said.
This article was written by Jill Treanor, for theguardian.com on Thursday 21st May 2015 17.50 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010