Wednesday, 5 June 2013

More signs of progress?

I had a quick look at the voting and engagement policy adopted by NEST (available here) and was interested to see this line about executive pay.
The heavy linking of pay to performance for already high achievers is unlikely to produce the motivational drivers that investors want executives to be energised by.
To state the obvious, policy doesn't not equal practice - certainly not when it comes to some asset managers in my experience - and this is just one sentence in a large doc. But you wouldn't have found a sentence like this in any investor's corp gov policy even two or three years ago. Now, in addition to NEST, there are bits on the motivational aspects of pay in docs published by Hermes, LAPFF and BlackRock and maybe others I am not aware of. (As an aside, it strikes me that an obvious next step is for the Corporate Governance Code to be amended.)

In addition, as I've previously blogged, the rem consultants are alert to a shift in thinking. PwC have gone by far the furthest, really questioning the value of incentive pay for execs, and making the point that linking reward to performance tends to push the overall level up.

I think we'll also start to see greater policy focus on this as an issue and I personally hope that Labour gets stuck into it.

In the three plus years I've been blogging/reading/thinking about this in detail I can definitely see there has been a shift in opinion, and this is becoming more pronounced. Given the way performance pay is embedded into unthinking UK corporate governance practice this is a long-term battle, and it is still very early days. But in the battle of ideas about pay I think we're making some progress.

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