Shareholders 'must have right to curb fat cat pay'March 2010
European governments should move swiftly to introduce laws that require executive pay to be subject to binding shareholder votes, the European Sustainable Investment Forum (Eurosif) has said.
Eurosif argues that European regulators need to introduce mandatory, rather than advisory, 'say on pay' voting along the lines of the situation in the Netherlands, Norway and Sweden.
It says this would help link executive remuneration more closely with both financial and non-financial performance, and would go some way to addressing the 'unprecedented level of public outcry' against high executive pay and bonuses.
Paris-based Eurosif, which has been studying the issue in conjunction with the UK-based Ethical Investment Research Service (Eiris), notes that regulatory frameworks in most European countries still fail to require companies to link their executive pay to elements of non-financial performance.
Its research shows that only 16 per cent of banks - the main focus of recent controversy over excessive pay - have a CSR-linked remuneration system.
Eurosif, an umbrella association of the national social investment forums in Europe whose affiliate members include BNP Paribas Asset Management, Mercer and Schroders, observes that there has been 'very limited new regulation' by governments on the issue despite governmental reviews, new sets of guidelines and a large amount of rhetoric following the banking crisis. It says there is no option but for 'excessive risk-taking' to now be curbed by regulators and investors, and that an emphasis on 'long-term reward schemes and sustainable growth' is needed.
Stephanie Maier, head of research at Eiris, said: 'As calls from investors, regulators and non-governmental organizations to link extra-financial issues to executive remuneration increase, our research shows that relatively few European companies are currently doing so.
'Furthermore, approximately half of the companies that link remuneration to environmental, social and governance issues do not clarify which of those areas are linked to the remuneration. CSR targets should be quantified, time-bound, verifiable and stretching.'
Although there are few signs of regulation in the air, over the past month some bank executives have tried to head off criticism on their pay by refusing to take bonuses. Royal Bank of Scotland chief executive Stephen Hester has declined his 2009 bonus, while several executives at Barclays have also turned down multi-million pound payouts.
There have also been signs in Britain of greater levels of shareholder activism on executive pay over the past six months. In December, the pub group Punch Taverns suffered one of the biggest ever shareholder revolts over 'fat cat pay' as 55 per cent of votes were cast against its remuneration policies.
Shareholders objected to the size of pay awards given to executives during a year in which the group posted a pre-tax loss of £406million ($616m, €454m) and suspended dividend payments.
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