UK Government’s Green Paper “Corporate Governance Reform”: Response of Old Mutual Global Investors

Richard Buxton, chief executive and head of UK equities, Old Mutual Global Investors:

“Executive pay has dominated headlines for more than 20 years. Despite much dialogue between investors and Boards, top level executives’ pay packages have continued to grow in size and complexity. This behaviour is not only frustrating to shareholders, but can be counterproductive for businesses, damaging their relations with employees, customer and the community.

“Enough is enough. We are pleased to see that the government is publicly addressing this issue and working with investors to remedy the situation. However, it is our belief that many of the proposals in the paper would have a limited effect. We are of the view that more should be done to police the existing governance policies and that creating over-complicated rules, that do not allow for sector or business specific nuances, could inadvertently create an ineffective and confused business environment.”

Old Mutual Global Investors’ full consultation response is attached. 

Its recommendations include:

  • The encouragement of simpler long-term incentive plans, which align interests through management building up a long-term shareholding in the company – with shares purchased on a monthly basis to smooth out share price volatility;
  • More should be done to enforce companies to comply with Section 172 of the Companies Act 2006. This requires directors to have regard to reputation, employee interests and the community: if complied with it should ensure propriety when it comes to remuneration and negate the need for many proposals in the green paper;
  • The encouragement of  company boards to implement greater gender and racial diversity – OMGI’s belief is that this is likely to improve performance, oversight and will enhance companies’ ability to consider wider stakeholder interests;
  • Remuneration committees should consider the nature of their industry and company – growth, turnaround or maturity – to establish what success should look like in terms of quantum of reward;
  • The introduction of new pay ratio reporting requirement – showing the total value received by the director in cash (including pension) and vested share awards and the total expected value and cash granted in the year. The ratio should be a multiple of UK median earnings;
  • The retention of  votes on pay policy as opposed to a focus on individual pay packages;

Allow existing policies and groups to be tested before making further changes – i.e. the investor forum, designed to facilitate shareholder and board engagement is still in its infancy.