Real Madrid rewards for Sheffield Wednesday performances
THE debate over 'fat cat' pay has reached new levels of intensity in the last week or two. Most of the UK's top companies have their annual meetings at this time of year, giving shareholders the chance to share their opinions on how these companies are run, and to raise any areas of concern.
Pay levels for directors are high on the list more often than not. More so this year because, for the first time, companies have to put details of their directors' pay packages to the vote. So suddenly there is much more information about the rewards going to Britain's top executives, and what they have to do to get those rewards.
The National Association of Pension Funds (NAPF) represents Britain's company pension schemes. If you are one of the 10m or so UK workers in such a scheme, it is your pension money that is being invested in these companies.
Between us, members of company pension schemes own assets of nearly £700bn, and our money accounts for more than 20% of all investment in UK companies. That is why we take such a close interest in how those companies are being run, including how the directors of British businesses are being rewarded.
In doing so, we always remember that it is in all our interests that British companies are successful. From the boardroom to the shop floor, a well-run, wealth-generating business is good for shareholders. Successful UK companies are, of course, good news for the UK economy as well.
To attract and retain the best management, companies can and do pay what many of us might consider very generous rewards. By European standards they are relatively high, but they are dwarfed by those in the US.
Unlike some people, we have no problem with high payments for high-quality directors. In fact, I would like to see more British directors earning more money.
The key word here is 'earning'. Top pay for top performance is fine. What annoys us is when some directors get Real Madrid rewards for Sheffield Wednesday performances.
Many companies already recognise this by setting challenging performance targets for directors. This gives them incentives to create wealth for shareholders. They get extra awards only if those targets are met.
These companies make sure none of their directors are on contracts of longer than 12 months, so that executives who fail to perform do not end up walking away with hefty payoffs.
And they ensure that the company's remuneration committee (which decides directors' rewards) is properly staffed by able, independent people who aim to get a good deal for the company and its shareholders, as well as ensuring fair pay for directors.
By building good working relationships with Britain's top companies, we have been able to bring our influence to bear on many of them. Over the last two or three years, we have seen significant progress.
But there are still some companies that continue to offer excessive rewards without setting proper targets. Some, for example, still offer so-called guaranteed bonuses. Our view is that you should get a bonus for achieving something out of the ordinary - not just for getting out of bed in the morning.
There is no place in this debate for the politics of envy. The UK has its fair share of world-beating companies that are well run and efficient, and pay their directors appropriately for their world-class performance.
They generate wealth for their employees as well as their directors. By delivering results for their shareholders, they are helping every one of us who has an investment in that company through our pension.
Companies that don't match up to these high standards are increasingly likely to find shareholders asking awkward questions.
• CHRISTINE Farnish is chief executive of the National Association of Pension Funds, which represents UK workplace pension schemes.
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