Pay and the Attitude of Institutional Investors

An article in the Financial Times on Friday (30/9/2016) focussed on the resistance of business to Theresa May’s “responsible capitalism”. Although the article acknowledged the need for change, for example in the area of director remuneration. Lots of practical problems were raised – for example how to select suitable worker representatives for boards in international companies. But the really revealing comment was this one from Paul Lee, Head of Corporate Governance at Aberdeen Asset Management. He was quoted as saying: “If you are saying that shareholders should be able to give a green or red light on pay every year, then we are in danger of treading on the toes of the board and taking control of the pay decision. That is not our job”.

Well Mr Lee I suggest that is exactly what shareholders are saying and yes it is your job to decide what the directors are paid. Directors should not be deciding what they themselves get paid. That is one reason why pay has been growing out of all reasonable proportions.

Until institutions accept responsibility for deciding what the directors are paid, and whether it is a reasonable amount or not, nothing will change.

Roger Lawson