City Chiefs Hold Secret Talks On Pay Revamp

Top City fund managers are holding secret talks about an overhaul of boardroom remuneration structures, amid concern that binding shareholder votes have failed to put the brakes on runaway pay packages.

Sky News has learnt that the Investment Association, whose members control well over £5trn in assets, has in recent weeks begun assembling a major campaign to revamp the pay structures employed across corporate Britain.

The talks are at an early stage, and have not yet yielded firm proposals for how such an overhaul might work.

However, the news that a body as influential as the Investment Association is leading a push for radical change suggests that reforms which have previously been elusive may now be a realistic prospect.

People close to the project said that fund managers had expressed particular concern about the complexity of long-term share awards which can often constitute well over half of a chief executive's annual remuneration.

One possible solution could be to introduce a uniform approach to long-term incentive plans which consists of fixed vesting periods and clawback policies, and which sets out the maximum value of awards at the point at which they pay out to executives.

Confirming the talks after being approached by Sky News, Daniel Godfrey, the Investment Association's chief executive, said: "People look at what (asset managers) are doing with their money, and they look at what are very complicated remuneration structures and at the very, very wide and increasing gap between top pay and average pay, and they want to know this is being delivered for real value.

"What we have seen over the last few years has been that pay structures have become more complicated and pay has been going up.

"I think everyone agrees that it is time for a fresh look at this to see whether there is a way that companies, investment managers and the people who own the money can find a more sensible way forward."

The new talks come three years after the 'Shareholder Spring' of 2012 resulted in the ousting of chief executives of companies including Aviva and Trinity Mirror following investor revolts over their pay packages.

That series of rebellions prompted Vince Cable, the last business secretary, to introduce binding votes on companies' pay policies, although votes on the previous year's remuneration reports remain advisory.

However, the reforms have not curbed the flow of shareholder anger over boardroom pay, with companies such as BG Group, Man Group and RSA all suffering substantial rebellions at their annual meetings in recent weeks.

Research from organisations such as the High Pay Centre shows that the average pay of FTSE-100 chief executives has soared from about £1m in 1998 to almost £5m last year - much of which has been driven by long-term share awards.

Company directors have long argued that such pay increases are justified because they help to align bosses' interests with those of shareholders, and because they operate in a globally competitive environment.

"There's clearly too much complexity - it takes an awfully long time to go through a remuneration structure to work out what it means, how it delivers, what it's linked to and that makes it very difficult to understand whether this is delivered for great performance," Mr Godfrey said.

Individual fund managers such as Fidelity have called for companies to introduce longer periods before share awards vest, and have begun voting against boards whose remuneration policies do not comply.

The Investment Association's reform drive was backed on Tuesday night by Simon Walker, the director general of the Institute of Directors.

Mr Walker said that boardroom pay had "gone to extremes" and expressed concern that inflated remuneration incentivised short-term behaviours and damaged productivity.