Saturday, 23 May 2015

Asset manager oversight of exec pay

There's a very telling quote early on in this piece by Jill Treanor on Fidelity's views on exec pay.
“If you approach executive pay from the point of quantum, you are setting yourself up to fail,” he said.
I think this encapsulates why there will continue to be controversy around exec pay. A lot of mainstream asset managers really don't think how much directors get paid is what they should be worried about (note we even have a corp gov jargon word - "quantum" - because we can't use words like "size", "scale" or "amount" can we?). Rather they say structure is what we should look at.

Fidelity's own ideas are at the soft end of the reform spectrum, basically tweaking long-term incentive plans that many think are fundamentally flawed. But that is a sideshow in any case, the key point is that Fidelity has "deliberately steered away from" talking about how much execs are paid.

For various reasons, the UK has put all its emphasis on addressing exec pay through company reporting and shareholder empowerment. As I constantly bore on, this means that exec pay is likely to reflect the interests of shareholders - in practice asset managers. If asset managers like Fidelity are explicit that they aren't going to tackle the amounts execs are paid, remuneration is only heading in one direction. We can see the practical expression of this view in shareholder voting on exec pay - still very timid, with actual defeats very rare (one rem report so far this season I think?).

What is more, if (big If) the economy starts motoring again we can expect to hear all the usual voices arguing more loudly that pay needs to be competitive, it's set by the market so no need to interfere etc. The limited social pressure for restraint may be lessened.

All this, to me, suggests likely renewed growth in exec pay. It will continue to be a problem for business legitimacy and reputation, but it may also bring into sharper focus the flaws in the UK system. One thing I am pretty sure of is that those who think we could try something different are likely to be provided with ammo for their arguments in the form weak shareholder oversight.

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