A campaign to make company executives more aligned to the long-term best interests of investors has been hailed as a success by Fidelity Worldwide Investment.
Dominic Rossi, global chief investment officer of equities at Fidelity Worldwide Investment, said it was important for large shareholders, such as asset managers, to push for more transparent and longer-term executive remuneration in the interests of all investors, whether individuals or pension funds.
He said: “In 2012, as part of the wider debate on executive pay, and with the need to simplify and align it better with long-term decision making, Fidelity took the view that the standard three-year long-term incentive plan (LTIP) was too short.”
According to data from Fidelity Worldwide Investment, 42 per cent of companies in the FTSE 100 have now adopted LTIPs with shareholding periods of five years or more, compared to just 4 per cent in 2013.
In 2013 UK legislation gave new powers to investors to scrutinise executive remuneration.
In 2014 Fidelity Worldwide Investment declared it would only support companies prepared to extend the shareholding periods for LTIP awards to more than three years, and from 2015, only those companies that extended them to five years or more.
Over the year to date, Fidelity voted against FTSE 350 management on at least one remuneration proposal at 56 per cent of AGMs.
John Kay, who chaired the Review of UK Equity Markets and Long-Term Decision-Making, which reported to the secretary of state for business, innovation and skills in July 2012, said: “I am pleased to see asset managers pressing companies to take a more long-term view.”
Gina Miller, founder of the True and Fair Campaign, said: “Fidelity cannot take all the credit; a lot of campaigning has been done by many shareholders and investor groups. Of course, there is legislation on the way so this transformation had to happen.”
Danny Cox, a chartered financial planner at Bristol-based Hargreaves Lansdown said: “Long-term incentive plans provide better protection for investors but ultimately increases executive pay – the longer the time period the greater the reward.
“Remuneration committees must provide appropriate performance-related incentives, but more importantly companies need to ensure they employ the right executives first who will deliver results without undue risk to clients, employees, the company or investors.”
Table title: LTIP shareholding period data for FTSE 100
|May 2015||Late June 2014||January 2013|
|Companies with a holding period of 5 years or more||42||27||4|
|Companies with a holding period of between 3 and 5 years||18||20||13|
|Companies with a holding period of under 3 years or no LTIP||40||53||83|
Source: Fidelity Worldwide Investment, 20 May 2015