April 18, 2017
“Hold-for-5/10 Years”: Norges Bank’s “Position Paper”
– Broc Romanek
As noted in this WSJ article and Irish Times article, Norges Bank Investment Management recently issued this brief “Position Paper” – as fleshed out by this companion note.
The thrust of Norges’ positions is that long-term creation best aligns the company’s interests with what shareholders want. Here’s the 1st of four positions that brings this point home:
1. The board should ensure that remuneration is driven by long-term value creation and aligns CEO and shareholder interests. A substantial proportion of total annual remuneration should be provided as shares that are locked in for at least five and preferably ten years, regardless of resignation or retirement.
The 2nd position takes on targets:
2. The board should develop pay practices that are simple and do not put undue strain on corporate governance. Allotted shares should not have performance conditions and the complex criteria that may or may not align with the company’s aims.
The 3rd position looks to install a cap on overall pay:
3. The board should provide transparency on total remuneration to avoid unacceptable outcomes. CEO remuneration should be determined and settled in cash and locked-in shares each year. The board should also disclose a ceiling for total remuneration for the coming year.
The 4th position challenges termination payouts:
4. The board should ensure that all benefits have a clear business rationale. Pensionable income should constitute a minor part of total remuneration. The board should commit to not offering any end-of-employment arrangements that effectively shorten or dilute the lock-in of shares.