June 19, 2013
UK Pension Investor Says: “Overreliance on Peer Groups”
– Broc Romanek, CompensationStandards.com
In this letter, the National Association of Pension Funds – the UK equivalent of CII – called for executive pay salary increases “to be capped at inflation and in line with the rest of the work force.” Variable pay performance conditions “should be genuinely stretching and support the long-term growth of the business,” said NAPF, which also noted concern that some “stretch” goals lead to overly-short-term behavior. NAPF criticized over-emphasis on peer benchmarking: “We are often told that each company is unique; as such we would like to see boards reflect more upon the drivers needed to enact their own individual strategies and less comparing themselves against their ‘peers’.”
In February, NAPF and Hermes Equity Ownership Services published a paper that included principles for alignment of executive pay with long-term performance.