Aberdeen wants companies to be forced to consult with shareholders over exec pay

 
Oliver Gill
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Aberdeen Asset Management Cowes Week - Day One
Aberdeen Asset Management said it has voted against 80 per cent of all pay resolutions in the US during 2016 (Source: Getty)

One of Britain's leading fund managers has said that executive pay rules should force boards to consult more closely with shareholders.

A wave of shareholder revolts against executive pay rocked the AGM season earlier this year, while Prime Minister Theresa May weighed into the debate as she prepared to replace David Cameron in Downing Street this summer.

There have been widespread calls in both the City and Westminster for greater transparency on executive pay, along with more powers for shareholders to prevent remuneration packages being waved through by boards.

Aberdeen Asset Management's recommendations to the business, energy and industrial strategy (BEIS) committee corporate governance consultation suggested a structure that would bind firms to agree a strategy going forwards with investors. These proposals would ultimately require approval from 75 per cent of shareholders.

Read more: Executive pay regulation will backfire if it’s not based on evidence

"This approach would lead to an active dialogue over the year, such that the vote gained the necessary support; a failure to achieve the threshold would likely have consequences for those directors who were party to the discussions between the company and its shareholders," Aberdeen said in its submission.

Nevertheless, Aberdeen disagreed that the significant numbers of votes against executive pay earlier this year necessarily meant the current structure was not working.

"On the contrary, we believe the significant votes, which reflect a coming of age of the greater disclosure and new powers recently given to shareholders, are evidence that the system can be effective.

"The companies that faced significant votes against, whether or not their resolutions were defeated, have been proactive in seeking additional dialogue with their investors and appear to changing their approach."

Read more: UK's top shareholders to propose executive pay shake-up

The fund manager, which said that it had voted against 80 per cent of all pay resolutions in the US in 2016, said that actually "the votes have also had a chastening effect across other companies".

It added: "Changes to underlying pay levels and structures, likely to be incremental, are already happening."

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