Ethical Performance
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investors urge top firms to vote on directors’ pay

April 2001

Eight leading institutional investors have come together to write to 750 publicly quoted UK companies urging them to allow shareholders an annual vote on their directors’ pay packages.

The pension funds and fund management firms have told the companies they are more likely to invest in businesses that demonstrate transparency over executive salaries and have clear links between directors’ pay and performance.

The eight include four pension funds – BT, British Coal, the Universities Superannuation Scheme and Calpers, the California Public Employees Retirement Scheme. The other signatories are Co-operative Insurance Society, Baillie Gifford, Hermes and Gartmore Investment Management, which is headed by Paul Myners, author of the recently published Myners Review.

The move has come in the wake of a UK government promise to introduce new disclosure requirements, if it is re-elected, that will improve the link between boardroom pay and performance.

The plans, announced by trade and industry secretary Stephen Byers, would require publicly quoted companies to publish a report on directors’ pay as part of their annual reporting cycle.

The report would have to disclose details of individual directors’ remuneration packages, outline the board's remuneration policy and disclose information on various measures of performance. Companies would also be required to provide performance measurement comparisons, in graph form, along the lines of those required by US law.

Although details of what the performance graphs would cover have not been finalised, the Department of Trade and Industry said they would provide ‘historical information on the company’s performance’.

For now Byers has decided not to make reporting on directors’ pay mandatory, but he will reconsider that option after publication of the company law review’s recommendations, which is expected next month.

In the meantime the minister has urged institutional investors to use their voting powers to encourage companies to reform their board pay policies – and said he had staged ‘helpful discussions’ with the Association of British Insurers and the National Association of Pension Funds ‘about the action they are taking to improve compliance with best practice in this area’.

He said the government wanted companies to make sure voluntarily that remuneration committees were composed exclusively of independent non-executive directors.


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