Pension funds hit out at Greenbury code on top pay

Britain's big investors yesterday launched a surprise attack on the effectiveness of the Greenbury code of practice on executive pay.

The National Association of Pension Funds (NAPF), which represents some of the City's most influential institutional investors, said Greenbury had "not allayed concerns" among shareholders and required a number of improvements.

In evidence to the Hampel Committee on corporate governance, the NAPF criticised the way directors' performance targets were set and measured.

It also suggested that non-executive directors, who made up the remuneration committees that set boardroom pay, could benefit from specialist training to help them do the job better. And the NAPF toughened its support for a maximum rolling contract of one year for executive directors.

In a report that reflects widespread unease at the potential for abuse of the new long-term incentive plans recommended 18 months ago by the Greenbury report, the NAPF said the methods used to determine pay were often viewed with scepticism by shareholders, and confidence in board procedures needed to be bolstered.

The principles for setting performance hurdles for directors and the measurement of performance against these hurdles needed reinforcing, the NAPF told the Hampel Committee, which is the the successor to the Cadbury Committee on corporate governance. The NAPF recommended "further elaboration" of the Greenbury code on top pay, to give guidance to remuneration committees.

The Hampel Committee, led by ICI chairman Sir Ronald Hampel, should consider giving guidance to remuneration committees on how to determine directors' pay packages and how to make their reports to shareholders, which the NAPF believed should be a single, self-contained report rather than scattered through notes to the accounts.

The pension funds also recommended that all directors should be required to retire by rotation, so poor performing members of the remuneration committee could be sanctioned.

The NAPF said: "Further guidance is needed in connection with the determination of performance targets, which must be challenging without being demotivating."

The evidence to the Hampel Committee said remuneration policy should be clearly and comprehensively stated, accompanied by tables, and any new bonus arrangements or long-term incentive plans "should be explained and the measurement targets justified prior to implementation".

However, the NAPF urged that the importance of directors' remuneration issues should be kept in perspective, and any new guidelines adopted by the Hampel Committee should be flexible enough to meet the circumstances of individual companies. It also insisted that shareholder approval of individual directors' pay was impractical.

The NAPF said recent litigation had reinforced the need for rolling contracts in most cases to be for no longer than a year. Compensation has in the past been cut back in situations where directors are likely to find another job, but this "legal duty to mitigate" had been weakened by court decisions.

The NAPF also urged that company secretaries should, for the first time, be given the same security of tenure as auditors, so that only shareholders could dismiss them.

It said the Hampel Committee should resist the urge to toughen the Cadbury code with more prescriptive requirements for companies, and it should be pragmatic and flexible.

Among detailed improvements, boards should explain why any director over 70 who is up for re-election should be retained, and publish brief biographical details of all directors in the annual report.

The NAPF reaffirmed its objection to two-tier shareholdings that give one class of share fewer rights, defended the single board system against the continental two-tier structure and said there should be a pragmatic approach to implementing the Cadbury code for small firms.

The NAPF opposed the appointment of executive directors to represent particular interests, though it said all directors must take into account the interests of "relevant stakeholders" as well as shareholders.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Buttoned up: Ryan Reynolds with Helen Mirren in ‘Woman in Gold’
filmFor every box-office smash in his Hollywood career, there's always been a misconceived let-down. Now he says it's time for a reboot
News
people
News
Actress Julianne Moore wins the Best Actress in a Leading Role Award for 'Still Alice' during the 87th Annual Academy Awards in Hollywood, California
people
Sport
Ross Barkley
footballPaul Scholes says it's time for the Everton playmaker to step up and seize the England No 10 shirt
News
'We will fix it': mice in the 1970s children’s programme Bagpuss
science
Life and Style
2 Karl Lagerfeld and Choupette
fashion
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Graduate Recruitment Resourcer

£20000 per annum + commission: SThree: Sthree have an exciting opportunity for...

Recruitment Genius: Telesales Executive - OTE £32,000+

£18000 - £32000 per annum: Recruitment Genius: A Telesales Executive is requir...

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Day In a Page

War with Isis: Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria's capital

War with Isis

Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria
Scientists develop mechanical spring-loaded leg brace to improve walking

A spring in your step?

Scientists develop mechanical leg brace to help take a load off
Peter Ackroyd on Alfred Hitchcock: How London shaped the director's art and obsessions

Peter Ackroyd on Alfred Hitchcock

Ackroyd has devoted his literary career to chronicling the capital and its characters. He tells John Walsh why he chose the master of suspense as his latest subject
Ryan Reynolds interview: The actor is branching out with Nazi art-theft drama Woman in Gold

Ryan Reynolds branches out in Woman in Gold

For every box-office smash in Ryan Reynolds' Hollywood career, there's always been a misconceived let-down. It's time for a rethink and a reboot, the actor tells James Mottram
Why Robin Williams safeguarded himself against a morbid trend in advertising

Stars safeguard against morbid advertising

As film-makers and advertisers make increasing posthumous use of celebrities' images, some stars are finding new ways of ensuring that they rest in peace
The UK horticulture industry is facing a skills crisis - but Great Dixter aims to change all that

UK horticulture industry facing skills crisis

Great Dixter manor house in East Sussex is encouraging people to work in the industry by offering three scholarships a year to students, as well as generous placements
Hack Circus aims to turn the rule-abiding approach of TED talks on its head

Hack Circus: Technology, art and learning

Hack Circus aims to turn the rule-abiding approach of TED talks on its head. Rhodri Marsden meets mistress of ceremonies Leila Johnston
Sevenoaks is split over much-delayed decision on controversial grammar school annexe

Sevenoaks split over grammar school annexe

If Weald of Kent Grammar School is given the go-ahead for an annexe in leafy Sevenoaks, it will be the first selective state school to open in 50 years
10 best compact cameras

A look through the lens: 10 best compact cameras

If your smartphone won’t quite cut it, it’s time to invest in a new portable gadget
Paul Scholes column: Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now

Paul Scholes column

Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now
Why Michael Carrick is still proving an enigma for England

Why Carrick is still proving an enigma for England

Manchester United's talented midfielder has played international football for almost 14 years yet, frustratingly, has won only 32 caps, says Sam Wallace
Tracey Neville: The netball coach who is just as busy as her brothers, Gary and Phil

Tracey Neville is just as busy as her brothers, Gary and Phil

The former player on how she is finding time to coach both Manchester Thunder in the Superleague and England in this year's World Cup
General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?