Norway's sovereign wealth fund calls for the end of long-term incentive plans

Oliver Gill
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Chief exec Yngve Slyngstad wants an end to long-term incentive plans (Source: Getty)

Long-term incentive plans should be scrapped, the boss of the world's largest sovereign said today.

Norway's sovereign wealth fund also revealed it had one of its best ever quarters in the first three months of 2017.

The country's mammoth fund, the world's biggest, made 298bn kroner (£34.3bn), a return of 3.8 per cent, in the first quarter taking total assets under management to 7.9 trillion kroner.

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Yngve Slyngstad, the chief executive of Norges Bank Investment Management, broached the thorny topic of executive pay as AGM season kicks off in many countries including the UK. He told Reuters:

For us long-term incentive plans should be removed from pay packages. The packages we want in the future are very different from what they are now. They are too complicated.

He said the fund, which invests in around 9,000 companies around the world and owns on average 1.3 per cent of all listed equities, will speak to the companies it invests in before voting on remuneration proposals.

"We will engage in a dialogue this voting season. Next year we will use our voting power," Slyngstad added.

What is a long-term investment plan (LTIP)?

It is a reward system whereby executives and/or employees receive shares or other rewards based on the fulfilment of certain conditions. They are not necessarily linked to the performance of the company's share price.

The idea is to encourage their senior executives to build up a shareholding in the hope of aligning their interests with those of their shareholders.

Shares are held in trust and once the specified conditions are met, trustees release the shares to executives.

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The Norwegian government, heavily dependent on tax revenue from the oil and gas sector, withdrew 23bn kroner during the quarter to fund public expenses.

The fund's investment return was still close to record-breaking. Slyngstad said: "Measured in Norwegian kroner, this was the third best quarter in the history of the fund, driven by strong returns on the equity investments."

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