Should asset managers be acting on CEO pay?

Not just in South Africa, but around the world, executive pay is under heavy scrutiny. A number of recent studies have called into question the rate at which pay for top executives is increasing.

An analysis by Moneyweb earlier this year also found that shareholders of a number of the JSE’s top 100 companies are starting to express their dissatisfaction with some executive pay structures. They are voting in noticeable numbers against certain policies presented at AGMs.

Even though these votes are currently non-binding and only considered ‘advisory’, the fact that shareholders are voicing their discontent is significant. This is because questions have been asked for some time about whether asset managers and other large institutional investors have paid enough attention to executive pay, and whether they have simply been rubber-stamping whatever is presented to shareholders. There is a feeling that they could, and should, be playing a more active oversight role.

As the chief investment officer for listed investments at Mergence Brad Preston explains, executive pay is a complex and emotive question. One can’t therefore simply say that, across the board, it’s something asset managers should be fighting against.

“We’ve tried to shy away from making blanket statements like it is a problem or it isn’t a problem, because I think it’s much more nuanced than that,” says Preston. “There are a number of different issues within it and there are a lot of company-specific issues as well.”

There are also inherent conflicts in the relationship between management and institutional shareholders.

“The reality is that it’s not comfortable for an analyst or portfolio manager who wants to have a good relationship with a management team to fight with them about what their salaries are,” Preston explains. “That is not an easy discussion. So asset managers are not naturally incentivised to be too aggressive on these things.”

However, he argues that this is something that needs to be managed. Asset managers do need to recognise the role they should be playing and not be afraid to play it.

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