BlackRock demands end to excessive
Set FTSE 350 pay and pensions in
line with rest of workforce, says asset manager
BlackRock has demanded an end to pay
awards that outpace ordinary employees at the UK’s biggest companies
ahead of a round of critical shareholder votes in 2017.
The world’s largest asset manager is
also pressing companies to curtail the generous pension packages that
are commonly granted to top executives, calling for retirement
contributions to be “in line with the rest of the workforce”.
tougher stance on
executive pay is detailed in a letter, seen by the Financial
Times, that was sent last week to the chairmen of all companies in the
FTSE 350 index.
The letter will provide fresh ammunition
to campaigners calling for reform of executive pay.
Total pay for bosses of FTSE 100
companies has quadrupled over the past 18 years as repeated efforts by
shareholders to control spiralling remuneration awards have failed.
BlackRock initially indicated that its
stance on executive pay had hardened during a parliamentary hearing in
December, when it said it would
vote against members of remuneration committees that agreed to
The asset manager’s letter goes further,
arguing that pay increases for top executives should reflect those
given to the broader workforce.
“In the case of a significant pay
increase that is out of line with the rest of the workforce, BlackRock
expects the company to provide a strong supporting rationale,” said
Amra Balic, head of BlackRock’s investment stewardship team in Europe.
The letter also states that board
committees should consider and respond to voting results on
remuneration awards at the previous year’s annual shareholder meeting.
Companies historically have frequently
used comparisons with pay awards made to executives at peer groups as
a justification for agreeing more generous remuneration packages for
executives. BlackRock is highly critical of this widespread practice,
known as benchmarking.
“Benchmarking should only be used as a
frame of reference for what competitors are paying, rather than as a
starting point for negotiations,” said Ms Balic.
Companies should also disclose more
information about their use of remuneration consultants, including the
names of those appointed and their fees, she said.
Roughly half of the companies in the
FTSE 350 index will face binding votes on pay in 2017. Binding votes
give shareholders the final say on executive pay awards, instead of
pension funds over the long-running failure of companies to curb
excessive pay for top executives is threatening to spark a fresh round
shareholder revolts this year.
Theresa May, the prime minister, has
promised to tackle the issue and the UK government published a
consultation paper in November that outlined a range of possible
The government wants the link restored
between executive pay awards and company performance. Academics say
the metrics used most widely to judge performance — earnings per share
growth and total shareholder return — are easily manipulated and
promote damaging short-term decision making by executives.
“We are wary of companies using metrics
such as earnings per share or total shareholder return [as performance
measures],” said Ms Balic.
BlackRock would instead “encourage”
companies to use fundamental measures of the value created by a
company such as comparisons of returns on invested capital, she added.