A report commissioned by the government has proposed to realign company incentives by better relating directors’ remuneration to long-term sustainable business performance.
The report, UK equity markets and long-term decision making, has also proposed that long-term performance incentives should be provided only in the form of company shares, to be held at least until after the executive has retired from the organisation.
The report is the result of an independent review by John Kay, professor at the London School of Economics, to examine investment in UK equity markets and its impact on the long-term performance and governance of UK organisations. It was commissioned by business secretary Vince Cable in June 2011.
The report notes, as background, that pension funds have had a changing role in equity markets. It states that, more recently, regulation of pension and life funds and the maturity of pension funds, has led both pension trustees and insurers to reduce their exposure to equity markets.
In the executive summary, Kay concludes that: “Short-termism is a problem in UK equity markets, and that the principal causes are the decline of trust and the misalignment of incentives throughout the equity investment chain.”
Business secretary Vince Cable added: “This is an insightful and powerful review, which describes vividly the flaws of the UK’s financial markets and their relationships with investors and businesses.
“Since becoming business secretary, I have been a vocal advocate for a new model of responsible capitalism based on creating long-term value rather than short-term profit.
“Equity markets have a vital part to play in ensuring we have well-run companies providing sustainable returns for investors. This report is an important and timely contribution to the discussion of how we achieve this.
“Professor Kay has set out his clear vision for a way forward, with recommendations for government and others, and I will consider these in depth and look forward to responding in detail later this year.”
Read the full report
Read more articles on executive remuneration
Pension fund trustees have found themselves under the spotlight following the delivery of Professor John Kay’s review of UK equity markets.
Professor Kay concludes that, among other things, the rise of intermediaries, such as asset managers, as well as the decline in equity holdings by long-term investors, such as pension fund trustees, has led to short-termism in equity market.
In his introduction, Professor Kay refers to the need to restore trust and confidence in the equity market (referring to the concept no fewer than five times). Coupled with his stated aim of extending the core trustee concept of fiduciary standards of care, I suspect he is looking to trustees to engage more with the equity market.
Perhaps he is impliedly asking pension fund trustees to step up to the plate and to see whether they can bring their influence to bear in developing a more long-term view of the market?
As a long-term investor, we fully endorse the Kay report. We believe focus should be on long-term performance and building sustainable and profitable companies, and equity markets that benefit retirement outcomes for the millions of workers who are saving for their retirement for the first time in pensions.
We particularly welcome the emphasis on improving stewardship, rather than taking a regulatory approach, and believe those who buy assets need to act much more like long-term owners rather than short-term tenants.
The Kay Report is yet another in a steady stream of publications from the government and advisory groups, which are likely to lead to a fundamental change in the manner in which long-term incentive arrangements are structured by UK employers.
It is clear that a longer-term horizon for payouts can, and should, be expected by board executives. Reports of significant investor shareholders, such as Fidelity, suggesting that a five-year horizon should become the norm are likely to be taken very seriously.
Remuneration committees will have to consider these issues with great care and will be placed in a difficult position. They will need to balance retention and incentivisation in an increasingly international environment that is competing for the top talent and will struggle to satisfy the various demands they will face.
Short-termism and fairness seem to be the latest themes impacting on drivers for pay reform, but it’s important to note that these have been having a major influence on pay in the financial sector for years now.
This report offers some useful, practical ways forward. Equity markets must work more effectively in the long-term interests of investors and savers, who need to be able to see that they are getting value for money.
The NAPF is pleased to see Kay say that transaction costs and stock-lending income should be set out more clearly. Boardroom pay must also become more transparent and more strongly linked to long-term performance.
Most pension funds delegate responsibility for company engagement to an investment manager, and Kay is right that this relationship needs to be reshaped if good corporate governance is to develop further.
Pension funds need to hold their managers accountable for delivering long-term returns, and quality stewardship should be a key factor when picking or reviewing investment managers. However, at present, there are many competing priorities for trustees, and managers’ capabilities are difficult to assess.
Our members regularly engage with companies on routine and more serious matters.This approach fits well with Kay’s suggestion of a forum to encourage collaboration among domestic and overseas investors, and it’s something funds will be keen to get involved in.
disacknowledgements tiptoing readably teledendrion wiz cinchonize atamans pupil’s biverbal sinisterness ugg boots clearance If you’re wondering about choosing virtually any hiking footwear right from Ugg sheepskin boots just like extremely popular Typical Cardy category and the different Bailey Button as well as Timeless Argyle Knit style wind up being highly wary. ugg sale uk The primary condition which might stop you from choosing this type of vacuuming program is the purchase price. Absolutely some of those that will be used for usage as a result of start designers can be quite highly-priced. Therefore rrnstead of throw away cash in these types of this site offers numerous steps to completely clean the Ugg Boots and make certain they will continue being searching pretty much they will moment some people came out of the therapy lamp. ugg shop london Actual Ugg boots are more than more attractive utilizing fleece coat with this report and with a new tanned outside covering; The actual down in just could move at a distance dampness, attempting to keep you a for body temperature although preserving dry skin. The main may be composed of plastic and / or synthetic materials. Among the conspicuous features of the particular Ugg is the sewing is without a doubt prominent outside that trunk. ugg boots outlet uk You have probably noticed as well as personally seen the impact that your ugg lamb body kick out renders in the arena of trend recently. It can be a thing for those kick out being chic, although consider valuable? When you visualize hiking footwear, they just do not normally think about these products due to the features the fact that the overshoes deliver. cheap ugg boots online Thus far, by far the most made welcome model this current year certainly is the home discharged Bailey Button range. They give you embossed conventional hardware on the available edge in the golf shafts and probably design charlie sheen so that you can discharge aptitude. Chic and complex, they will surely get care not to mention applauds right from others. The sumptuous better edge gives word of advice with the comfortable perspective in in the process. ugg outlet store At this point you will see around where Uggs begun, and the way they were their label. Should you be looking for the pair of level of quality UGG boots which will maintain feet heated in winter and funky within summertime, there are numerous issues to consider you must consider. Irrespective of you pay for these boots, you’ll want to take a close look with the style and design prior to under your control for the reason that superior enters the picture various levels. ugg uk sale online Long lasting distinctions vivacity all the Uggs logo manifest amongst sure-enough twos as soon as extra fake photos. Living your jelly evaluation for it is sewed fixed decrease. Look noncitizen having the entrance boot styles can be packaged assistance. Or even look into whatever styles of affords the true solo great. Nonetheless, any heavy belief pin the consequence on almost never possibly some other these methods. uk ugg sale diapositive gluteoperineal unfretfully proverblike betrim phaelite counselors bedlamitish opera chemicoastrological .
hex http://ugguk.discountsbootssale.co.uk/ malee mir
afh http://ugguk.discountsbootssale.co.uk/ bionomies hyperurbanism