UK - The government's decision not to legislate against excessive payments for underperforming company bosses has split the industry.
Investor lobby group Pensions Investment Research Consultants and the Trades Union Congress slammed the government for being a soft touch.
But the National Association of Pension Funds and the Association of British Insurers – which published a joint paper in 2002 setting out best practice guidelines – both welcomed the government’s decision to resist legislating against overpaid company chiefs.
PIRC says the department of trade and industry’s consultation document on rewards for failure is “totally inadequate”.
Managing director Alan MacDougall believes too much is expected of institutional shareholders.
He said: “The government’s statement condemns shareowners and employees to a continuing spectacle of undeserved personal remuneration rewards with no effective restraint.”
PIRC has called for legislation to force companies to publish the terms of remuneration contracts and settlement payments for shareholder approval. The TUC is taking a similar line. General secretary Brendan Barber says shareholders are beginning to bite but they need stronger teeth.
He said: “British boardrooms have an impressive record of evading legal restrictions on executive excess by promising to get their own house in order but continuing to offer lavish pay deals.
“Votes against platinum parachutes at company AGMs are not binding and fund managers, who represent millions of pension scheme members, do not have to publicly disclose how they vote.”
But the ABI said the government’s decision to resist legislation was “a pragmatic and sensible response to evidence from shareholder organisations”.
Head of investment affairs Peter Montagnon said: “We are pleased that the government has decided not to legislate. But it would be difficult to define failure within the law and any law would immediately spawn an industry of lawyers looking for loopholes.”
This is in line with an earlier response from the National Association of Pension Funds which said industry needed less red tape, not more.Trade and industry secretary Patricia Hewitt insisted that increased activism by institutional investors and the promotion of best practice “has the potential to remedy the situation”.
She added: “Therefore, the government should wait to see the effect of these developments before it considers legislative remedies.”
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