Shareholder organisation Sharesoc has called on the government to give investors the power to curb executive director pay, as a scathing report lambasts fund managers for failing to provide adequate stewardship over the companies in which they invest.
The body has submitted written evidence to the Business, Innovation and Skills Committee inquiry on corporate governance, recommending that the average FTSE 100 chief executive pay packet is cut by a half.
It also said the maximum annual bonus should be 100 per cent of salary.
This comes as a paper from think tank the High Pay Centre, released last month, urged companies to revise the way executives are paid, arguing shareholder interests are often not served by top bosses who “over-compensate” themselves.
Sharesoc backed the report, saying shareholder committees should be introduced to represent individual investors.
It also supported the initiative to disclose pay ratios, comparing the pay of the top boss to the average employee, and the requirement of a binding annual vote on remuneration, a proposal backed by prime minister Theresa May.
Sharesoc pointed out that individual investors do not have effective power to curb directors' pay.
“Fund managers, who are merely intermediaries in the ownership chain, have usurped this power: but have patently failed to provide effective stewardship,” the report read.
“[Fund managers] are responsible for creating many of the current problems, yet to date seem to have avoided blame. Why should we expect them to suddenly change their behaviour?”
“It is time for a strong input from Government and regulators of the London Stock Exchange to change the framework in which we are currently operating,” it stated, adding the ultimate goal should be to get more power back to the end investors.
Roger Lawson, deputy chairman of ShareSoc, said the views of individual shareholders tend to be under-represented in many policy discussions, and said part of the problem is individual shareholders are “disenfranchised” when their shares are held in nominee accounts.
He said this was a particular problem with companies listed on the Aim market, adding reform is “necessary” to ensure firms are “properly regulated”.
This comes months after the organisation called for improvements in the quality of Aim-listed companies to prevent investors losing money.
