Hermes calls for an overhaul of chief exec pay to improve long-term performance

 
Courtney Goldsmith
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Theresa May at the Conservative Party Autumn Conference
Theresa May pledged to have companies publish their pay ratios (Source: Getty)

Hermes Investment Management has called on large publicly listed companies to overhaul executive remuneration models.

The company has released a paper outlining why restructuring remuneration practices helps long-term company performance and emphasising the need to address the question of fairness.

The proposed reforms include publishing the ratio of chief exec to median worker pay and a written note from the chair of the board to employees explaining the basis for the boss’ pay awarded that year.

Read more: Mid-cap shareholders happy with exec pay, says Deloitte

Hans-Christoph Hirt, co-head of Hermes EOS, Hermes Investment Management, said: “The combination of simplicity with increased certainty of outcome should result in lower average payouts, without changing the value of the award in the minds of individual executives.

“Importantly, we believe pay packages should avoid incentivising unintended behaviour and encourage the creation of sustainable value for all stakeholders. A shift away from heavy reliance on performance-related pay should assist with this.”

The ratio of chief executive pay to the average worker has doubled in just over a decade from 70 times in 2002 to 140 times in 2015, a report by the High Pay Centre said. This rapid expansion of CEO compensation has led to public resentment.

Read more: Government to launch workers on boards consultation within weeks

Two-thirds of the population believes executive pay is too high, and 72 per cent are “angry” about it, a recent survey by PwC revealed.

Prime Minister Theresa May has spoken of her intention to clamp down on executive pay.

Saker Nusseibeh, chief executive of Hermes Investment Management, said: “We stand ready to work with companies to support efforts which we believe are in the interests of the company and their long-term shareholders.”