LTIPs Face Axe After City Chiefs' Pay Review

A group of heavyweight City figures is to consider whether long-term share awards should be scrapped as part of a radical review of Britain’s boardroom pay culture.

Sky News has learnt that the move will be among a number of options explored by a new panel called the Executive Remuneration Working Group, set up by the Investment Association, which represents the UK’s £5.5trillion asset management industry.

The committee will include some of the biggest names in the City, including Nigel Wilson, chief executive of Legal & General, which owns the FTSE-100’s biggest single institutional investor.

The group will also comprise Helena Morrissey, the Investment Association’s chair; Daniel Godfrey, the trade body’s chief executive; David Tyler, the chairman of J Sainsbury; Edi Truell, pensions adviser to Boris Johnson, the London Mayor; and Russell King, who chairs the remuneration committees at Aggreko and Spectris.

Their work, which is due to take about six months, could result in an overhaul of the way Britain’s top public company bosses are paid, with investors increasingly concerned that the complexity of remuneration schemes is obscuring the proper scrutiny of their performance.

Speaking to Sky News on Monday, Mr Godfrey said: "Between companies, investors, government and the media, we’ve failed to make executive pay an obvious reward for exceptional personal contribution.

"The Working Group’s objective is to make a real difference by bringing the simplicity that makes transparency meaningful to the issue.

"This could be the starting point for a new relationship between highly paid executives, their stakeholders and society."

Sky News revealed in May that Mr Godfrey was drawing up plans for the review.

As well as abolishing LTIPs altogether, another of the possible proposals 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.

The new initiative comes 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.

The series of rebellions prompted Vince Cable, the then 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 this year.

On Monday, a report by PricewaterhouseCoopers, the accountancy firm, said that the award of substantial annual bonuses to FTSE-100 bosses raised questions about "whether variable pay is living up to its name".

Research by the High Pay Centre has shown that the average pay of FTSE-100 chief executives soared from about £1m in 1998 to almost £5m last year, with much of the increase attributable to 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.

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.