UK - The Local Authority Pension Fund Forum is threatening to name and shame companies which refuse to cut service contracts for executives.
The LAPFF - in a collaborative effort with corporate governance experts PIRC - has identified 120 companies from the FTSE350 which are still issuing two-to-three-year service contracts to their executives against best practice guidelines.
The two organisation have sent letters to the companies urging them to reduce their contractual terms.
LAPFF chairman Bob Sowman states in the letter: “We seek assurances from you that all executive directors will be reduced to one year or less in the near future.”
Out of 90 responses to the letter, only 20 companies have made their intentions clear and confirmed that they will move their executives on to one-year contracts without compensation measures.
PIRC research director Stuart Bell confirmed that action will be taken against companies which refuse to alter their contracts.
He suggested that PIRC and LAPFF could “engage in a voting campaign at companies’ annual meetings” as a way to force the change.
But London Pensions Fund Authority chief executive Peter Scales said the campaign would go further than this.
It's a shareholder issue, but the only action so far has been to vote. The next step is to publish the facts.
He warned: The power of the funds that the LAPFF represent means their voting powers will be enormous.
West Midlands Metropolitan Authorities director of finance Brian Bailey welcomed the move by the LAPFF and described the shift to one-year contracts as a crucial step to building confidence in shareholders.
He said: “We’ll vote against directors who have service contracts for more than 12 months.
“There has been some success, but that has been offset by directors' pay going up. It’s one-step forwards, half-step back. Shareholder rewards should match that of the directors.”
PIRC will be holding a meeting in June with LAPFF to assess the responses formally and agree on any subsequent action that may take place.
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