Pension funds question investor acceptance of remuneration committees

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Investors are being urged to up their game in the debate over executive pay by taking a tougher stance on the committees that sign-off remuneration policy.

The Pensions and Lifetime Savings Association (PLSA), which represents over 1,300 pension schemes and representing £1 trillion in assets, today revealed new guidelines on corporate governance policy.

Read more: Aberdeen calls for greater shareholder powers over exec pay

Similar to other investor groups, the PLSA has previously raised concerns over the pay gap between executives and ordinary workers.

Serious failure

But it highlighted that while large proportions of its members had voted against pay levels, only a small number opposed the re-election of the chairs of oversight bodies that approve exec pay: the remuneration committees.

"If the process of engagement prior to the AGM vote fails to produce a remuneration policy that shareholders can support, this represents a serious failure on part of the chair of the remuneration committee in the most fundamental aspect of their role," the PLSA report outlined. 

As such, a vote against the remuneration policy should in most circumstances be accompanied by a vote against the chair of the remuneration committee, if they have been in post for more than one year.

PLSA policy lead Luke Hildyard added: “Our new guidelines are designed to ensure the individuals responsible for a company’s executive pay practices are held to account."

Read more: In Theresa May's exec pay crusade, the devil will be in the detail

Last week, the world's largest fund manager, Blackrock, wrote to the chairman of every FTSE 350 firm, urging them to cap executive remuneration.

Blackrock said in its letter that it would only approve salary rises for directors if the wages of ordinary employees are increased proportionally.

In announcing its new guidelines, the PLSA reiterated its position on the matter.

“Provocative levels of executive pay are doing great damage to the reputation of British business. The failure of some companies to recognise stakeholder concerns on this issue is a major worry for pension funds as investors," said Hildyard.