Janice Turner welcomes recent government proposals which will help trustees become more active stewards of the assets they hold.
AMNT has welcomed Theresa May's announcement on 29 November of a new raft of proposals on corporate governance and a consultation by the Dept for Business, Energy and Industrial Strategy.
For too long the companies in which pension schemes invest seem to have escaped real accountability to their shareholders. Some time ago I studied the voting record of a very big pension scheme. Over two years they voted hundreds of times on resolutions at company AGMs.
They supported the company directors on about 97% of resolutions, voting against only about 3%. But in two years not a single one of those opposition votes prevailed. When shareholders feel so strongly about a company's behaviour that they cast their votes against the management line, but almost never win the vote, it means that ultimately management can do pretty well as they please.
In the year since we launched Red Line Voting and more pension schemes have, often for the first time, adopted environmental, social and governance policies, some fund managers have agreed to them but the response from others has ranged from reluctance to flat refusal.
This lack of accountability has allowed an arms race in executive pay. Regulations [Schedule 8 of the Large and Medium Sized Companies and groups (Accounts) Regulations2008], require a company has to state how the pay and employment conditions of employees have been taken into account when setting directors' pay.
They also require that report to set out what, if any, comparison measurements were used and how. But when chief executives of FTSE 100 firms now have a median pay package of £4.3m - 140 times that of the average worker - they haven't been trying very hard. Something's got to change.
Theresa May is absolutely right to insist that companies publish the pay ratio between the bosses and the workforce. A year ago, when AMNT launched its Red Line Voting responsible investment policies, our policy specified a vote against any remuneration package in which the executives earned more than 100 times their workforce's average pay.
Suggestions that pay ratios should not be published as they might be misunderstood are as patronising as they are disingenuous. The whole point of a pay ratio is to show how the chief executive's pay compares with their workforce, not anyone else's.
In a company that employs thousands of employees on the legal minimum wage, lower than the Living Wage Foundation's minimum, it is right that the chief executive should exercise particular restraint. Are they a team leader or not?
But it's the Green Paper on Corporate Governance Reform that really gets to the heart of the problem. It states that the government wants to explore options for strengthening shareholder powers and is also interested in ways of encouraging shareholders to make full use of their existing and any new powers on pay, and engaging in active stewardship of the companies they own.
Well, it would make a change if small and medium-sized pension schemes who invest in pooled funds were all free to engage in active stewardship. In the year since we launched Red Line Voting and more pension schemes have, often for the first time, adopted environmental, social and governance policies, some fund managers have agreed to them but the response from others has ranged from reluctance to flat refusal.
One hilarious excuse was that they had to refuse to accept the trustees' responsible investment policy in order to treat all their customers fairly.
The welcome proposals for a binding vote on executive pay will have far greater impact if it was the investors who set the policy on which way to vote.
If Theresa May really wants change for the better in UK plc, she and the business department should insist on the right of the trustees to be active stewards of the assets that they hold. This is a change that is long, long overdue.
Janice Turner is founding co-chair of the Association of Member Nominated Trustees
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