Top fund manager Dominic Rossi backs Theresa May's crackdown on bosses pay - but will change follow?

The PM's proposed reforms aren't quite as radical as they seem and while the backing of Mr Rossi and Fidelity is important, if the past is any guide the majoirty of his peers will still probably sit back and support the status quo

James Moore
Wednesday 20 July 2016 11:55 BST
Theresa May's pay proposals backed by top fund manager
Theresa May's pay proposals backed by top fund manager (PA)

Are we set to see an end to the crazy pay packages handed to the bosses of Britain’s top companies?

The public backing by the powerful Fidelity International of Theresa May’s plans to give shareholders a binding annual vote on bosses’ pay would appear to give grounds for optimism.

Dominic Rossi, Fidelity’s global chief investment officer of equities, said the Prime Minister’s proposals would “add significant momentum to our efforts to better align executive pay rewards with shareholder interests”.

Fidelity is one of the City’s most influential fund managers with £185bn of assets under management and Mr Rossi has clout. So it matters when he says something like that.

It isn’t the first time he’s made a splash. When former business secretary Vince Cable handed shareholders a three yearly binding vote on pay policy, after annual advisory votes on remuneration reports proved ineffective, Fidelity said it would vote against packages if so called “long term incentive plans” allowed executives to cash in their free shares after as little as three years. It wants bosses to think long term. Three years doesn’t even come close to qualifying.

Fidelity isn’t a voice in the wilderness either. Legal & General, for example, has also made noises on pay and corporate governance. There has been a modest resurgence in activism by the investment community. BP and WPP are the most notable companies to have felt the ire of their shareholders in recent months, and they are not alone.

However, it is worth remembering that after the surge in activism that occurred during the so called “Shareholder Spring” of 2012 - when an unprecedented number of companies faced rebellions over their pay practices - big fund managers largely piped down.

By 2014 Income Data Services was reporting a 21 per cent surge in earnings of FTSE 100 directors at a time when the average worker was lucky to get 2 per cent.

Average earnings generally are still 4 per cent down on 2008 levels, according to official figures, ver but such has been the growth in top pay that Tuesday 5th January was the day estimated by the High Pay Centre to be the moment at which the typical CEO had been paid what the average worker makes in a year.

The inequality - and the instability that comes with it - that has been allowed to build up in British society is glaring. And the trouble is that even progressive fund managers, which actually deploy the votes they have on the behalf of the millions of small investors, tend to subscribe to out dated thinking when it comes to the quantum of pay as opposed to how it is delivered and how long executives have to wait to get it.

You will often hear them say that they have no problem with high pay for high performance. And yet the biggest influence on most companies’ performance is not the CEO at all. It is the economy. Big strategic decisions are also made by boards as opposed to CEOs.

Ah but the market for their services is a competitive one, say the defenders of current pay practices. Despite the fact that it is vanishingly rare to see the boss of one company poached by another. JP Morgan is not going to be knocking on the door of HSBC’s Stuart Gulliver when Jamie Dimon finally decides to retire.

But we need to retain our top people! Of course you do. Trouble is, the modern CEO tends to last about five years tops. They don’t need to stick around for longer than that because, if they’re lucky, they will have made more than enough to retire on and can move to pick up some nice fees in consultancy and from part time non executive directorships.

These are all arguments you will see made by the High Pay Centre, or by governance watchdog Pirc, or by the TUC. You will not see them made by the big fund managers, who have the power to change things.

I’m not saying Theresa May’s ideas aren’t good ones - they are. I’m not saying Mr Rossi’s intervention isn’t welcome - it is.

But the reforms they advocate are actually quite modest, and the majority in the City still doesn’t appear to see why even they are needed.

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies


Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in