The secretary of the Church of England’s Ethical Investment Advisory Group (EIAG), Edward Mason, said this week that there was a “systemic problem” of excessive pay for company executives.
Ed Thornton writes in The Church Times:
The question of executive pay was in the news again this week, after the chief executive of the Royal Bank of Scotland (RBS), Stephen Hester, decided to waive a bonus valued at just under £1 million, after facing intense criticism. On Tuesday, the Honours Forfeiture Committee announced that RBS’s former chief executive, Fred Goodwin, would be stripped of his knighthood because of his management of the bank, whose failure contributed to the financial crash of 2008.
Speaking on Wednesday, Mr Mason said: “Remuneration for top banking executives and investment bankers is certainly too high. . . However, I’m uneasy about singling out or vilifying Stephen Hester. There is a systemic problem of excessive executive remuneration.”
But Ken Costa, the Christian investment banker who chairs London Connection, an initiative set up by the Bishop of London, the Rt Revd Richard Chartres, to address financial issues, said that he had “some sympathy” with the decision by the board of RBS to award Mr Hester the bonus.
Speaking on the BBC TV programme HARDTalk on Wednesday, Mr Costa said: “Stephen Hester was part of a solution rather than part of a problem. He brought a wrecked bank to a much better condition than it is. Now if the board of the bank isn’t going to determine the bonus, who is?”
Advised by the EIAG, the Church of England’s investment bodies — the Church Commissioners, the Pensions Board, and the CBF Funds — have taken a tougher line than other investors on executive pay. Last year, the Church Commissioners and the Pensions Board were two of the few institutional shareholders who voted against RBS’s executive remuneration plans at the bank’s annual general meeting.
During 2011, the Commissioners and Pensions Board supported only about 35 per cent of remuneration reports in the UK companies in which they have holdings.
The CBF Funds, which are managed by CCLA Investment Management, invest money from dioceses, parishes, and church schools, and other denominations such as the United Reformed Church. In 2011, the CCLA either voted against or abstained on about 71 per cent of executive-pay packages in the companies in which it has share holdings.
A report published on Monday by the TUC, All in this together?, says that, between 2007 and 2011, the earnings of top executives at FTSE 100 companies rose by 23.6 per cent, more than double the rise in median earnings for all employees. In 2010, the median pay of executives rose by ten per cent; in 2011, it rose a further 17 per cent.
The report states: “While the great majority of the workforce is facing falling real earnings, with most households on a near decade-long decline in living standards, there is little sign of an equivalent level of austerity for those on the highest pay. . . Top executives in the UK have been awarding themselves an ever-larger share of the economic cake since the depth of the downturn, even though the cake has been shrinking in size.”
The report says that last year “there were shareholder pay revolts at 14 of the FTSE 100 companies, where rebellion is defined as at least a fifth of votes against the remuneration report”; in 2010, there were seven such revolts.
Mr Mason said that the EIAG has a “strict policy on voting on executive remuneration”. It looks at the relationship between the basic salary that executives receive and the “variable remuneration” — such as bonuses — that is added to it. “When potential variable remuneration exceeds 300 per cent [of the basic salary], we abstain from voting on the remuneration report; if it exceeds 400 per cent, we vote against the remuneration report.
“We accept that bonuses should reward strong performance that benefits shareholders and society. We think that bonus and other long-term compensation schemes that each offer up to 100 per cent of salary against stretching targets seem reasonable, but we don’t see why you need to incentivise more than that.”
Dr James Corah, an analyst of ethical and responsible investment at CCLA, said: “In the past year, there has been a remarkable convergence of opinion around the topic of executive pay — that it has to be commensurate with the value created for shareholders.”
Stephen Beer, senior fund manager and UK strategist for the Central Finance Board of the Methodist Church, said: “We want pay to be linked to performance, and we don’t want it to be excessive. As Christian investors, we also focus on the low-paid, which is why we encourage UK companies to pay the Living Wage.”
Church investment bodies do not limit their shareholder activism to voting at annual meetings, however. Dr Corah said: “Once we have voted against any remuneration in a UK company’s AGM, we send a letter explaining why we voted against it, saying some of our clients are very concerned by executive pay.”
Mr Beer said: “We are engaging with companies as investors and owners, not as campaigners. We aim to have a constructive dialogue.”
The Government appears to be paying more attention to those who say that executive pay needs reining in. Speaking in the House of Commons last week, the Business Secretary, Dr Vince Cable, said: “Something must be done to address the disconnect between top pay and company performance.”
He urged shareholders to hold boards to account, and proposed that shareholder votes on payments to departing executives should be binding — a measure recommended by the EIAG during a consultation last year.
Mr Mason said: “The Churches aren’t huge shareholders in financial terms, but we do have a moral and ethical voice.”