World’s biggest wealth fund calls for end to CEO incentive plans

Norwegian oil fund aims to make firms impose a ceiling for top executive’s pay

Executive pay: The oil fund’s intervention is highly significant as it is one of the most influential investors. Photograph: iStockphoto

Executive pay: The oil fund’s intervention is highly significant as it is one of the most influential investors. Photograph: iStockphoto

 

The world’s largest sovereign wealth fund is pushing for a radical overhaul of chief executives’ pay, arguing that the long-term incentive schemes favoured by many companies are flawed and should be scrapped.

Norway’s $910 billion oil fund, which owns the equivalent of 1.3 per cent of each listed company in the world, will start pressing companies to end such incentives and instead force chief executives to own substantial stakes in their groups for periods of at least five, and preferably 10, years. It will also urge boards to name a ceiling for possible pay.

“We are signalling that we expect change in the way remuneration is constructed. Over time, we expect long-term incentive plans to be gradually phased out, particularly with regards to the recruitment of new chief executives,” Yngve Slyngstad, the head of the oil fund, said.

The oil fund’s intervention is highly significant as it is one of the most influential investors, especially on responsible investing. But it has shied away from speaking out about pay because of a fear of being seen as moralising from the safety of the egalitarian Nordic region.

‘Need for change’

Mr Slyngstad

“In our opinion, neither society at large, nor regulators, investors, boards or even CEOs are comfortable with where we are at the moment. Most people recognise there is a need for change,” he added.

The oil fund believed that pay should be “long term, simple and transparent”, Mr Slyngstad said.

Long-term incentive plans have become important for the pay of many chief executives. They account for 57 per cent of total pay for chief executives in the US, while they are double the level of base salary in the UK, according to research cited by the fund.

The oil fund will meet chairmen and other investors after publicly revealing its new pay policy today.

It is keen not to set a specific level for acceptable pay, but will ask boards themselves to set the maximum that a chief executive can earn each year.

The fund already votes against pay policies of some of the biggest companies in the world. Last year, for instance, it voted against the pay schemes of companies including Alphabet, Goldman Sachs, JPMorgan and Sanofi. – (Copyright The Financial Times Limited 2017)