LGIM ends feedback on executive pay after finding it mostly ignored

Legal and General Investment Management, the UK’s largest asset manager, will stop almost all direct feedback to companies on their executive pay, after finding its responses were ignored most of the time.

The £1.33tn asset manager outlined the change in approach in its annual letter to the chairs of remuneration committees, which it is in the process of sending to all of the 600 or so companies in the FTSE All-Share index.

“Most companies don’t act on the remuneration feedback we give them,” Angeli Benham, senior global ESG manager at LGIM, said in an interview. “For example, they write to us saying they’re going to increase the chief executive’s bonus from 150 per cent of salary to 200 per cent of salary. Our feedback is to say LGIM cannot support that, but they do it anyway.”

She added: “Often we’re an outlier among shareholders with our stricter stance on bonus increases, because we do not support them. Companies tend to do what’s right for management rather than listening to us a shareholder.”

For the past decade, LGIM has responded to companies that consult with the asset manager about proposed changes to executive pay. However, it found that for about 80 per cent of the proposed changes, “the answers are already covered in our policy document which is detailed and directive,” said Benham.

From now on, LGIM will direct remuneration consultations to its policy document, and only respond to those that are deemed exceptional, such as relating to the application of discretion or where the policy is unusual or not covered in the policy document.

“While we still think that it’s important to give companies feedback on changes to their executive pay . . . our time is better spent on educating the market on areas like income inequality and climate change,” said Benham.

LGIM voted against 37.5 per cent of new pay policies in the UK in 2020 and earlier this year said it would take an even tougher line on pay in 2021, in the wake of the pandemic. In particular it was looking to make sure that companies that had taken furlough money or cut dividends did not pay bonuses.

Earlier this year, it voted against pay and bonus schemes at Cineworld, Hollywood Bowl and Future, the magazine publisher. The asset manager’s 2021 votes on pay have not yet been published.

The letter to remuneration committee chairs also encouraged companies to offer free shares to all employees, to motivate them and allow them to share in the success of their employer.

Schroders, the £717bn asset manager, has launched an initiative to give all of its roughly 5,500 employees 5 per cent of their salary in shares.

Schroders chief executive Peter Harrison told the Financial Times: “We want to create a deeper sense of partnership and belonging among everyone.” The move has been “extraordinarily well received” internally, he said.

Meanwhile LGIM is asking all companies to pay their employees the real living wage, which is £9.50 an hour nationally and £10.75 in London.

“We want them to focus more on their employees than on their executives,” said Karoline Herms, senior global ESG Manager at LGIM. “Many working employees are struggling to make ends meet, having to juggle between putting food on the table and heating their homes. This can have long lasting impact on their health and their productivity.”