Are Fair Pensions being entirely fair on fund managers? A Mindful Money view

22nd November 2012

Campaign group Fair Pensions has just issued a big report in which it has criticised many of the UK’s fund managers for not being active enough on executive pay. But does it own chart slightly undermine its case?

The group says that despite several high profile votes against controversial remuneration packages for directors, it did not amount to a so-called ‘Shareholder Spring’.

It also wonders whether it is appropriate to compare shareholder votes on executive remuneration to the toppling of dictators in the Arab Spring. At Mindful Money we tend to agree with that point at least.

 The report is available here on Fair Pensions’ website along with news of a host of other campaigning issues the group is involved with.

Yet we are not sure if Fair Pensions makes an entirely convincing case. It may be undermined by its own excellent graph accompanying this post. (If you click through to the Fair Pensions report, a bigger version is available to view in more detail).

Broadly, the group has looked at the voting record of twenty of the UK’s top fund and pension fund managers on ten controversial company pay and benefits packages and deemed them seriously lacking. It is red for ‘no’ votes, green for ‘yes', yellow for abstentions, grey for not disclosed, blue for a split vote within the firm and a rather fetching turquoise for those due to disclose (all for fund firm Schroders).

The four criteria Fair Pensions use to identify the controversial packages and place red flags on them are  

1)      single performance criteria in executives’ incentive plans

2)      transaction-related bonuses or ‘golden hellos

3)      moving the performance goal-posts on executives’ incentive plans

4)      variable pay of more than 200% of executives’ base salaries

On this basis, the packages, many of which were defeated, do seem worthy of attracting a red flag.

Yet, a cursory glance at the graph also shows that a large number of fund managers voted against these packages. There is a large amount of red marking no votes, though we do think it would be better if all the managers had disclosed how they voted in all cases.

It also appears that managers are making up their own minds situation by situation, so for example the row for Kames Capital has a lot of green and red. State Street and F&C were very sceptical of the packages and even Aviva, hauled over the coals for its own remuneration package and on both the x and y axis, has voted against in five cases out of ten.

Mindful Money thinks if it isn’t quite a spring, then surely Fair Pensions has charted a bit of a thaw.

In addition, some firms have split votes because different fund managers in different funds may vote in different ways as is clearly the case with JP Morgan.

In fact, Mindful Money wonders if that doesn’t cut to the heart of the matter. Fund managers are not voting for or against remuneration packages because they seem too high but because of what it means for performance.

Fair Pensions also criticises the fact that the Government has accepted that shareholders should only get a binding vote on pay every three years, rather than every year. It believes this is because of the reluctance of institutional shareholders to get fully involved, shown by the very high number of firms which opposed binding votes when they answered the Government's consultation. At 72 per cent this is arguably the most powerful statistic in the report. But once again we have to ask isn’t the primary task of fund managers to deliver returns. So is three years an unreasonable compromise?

It is quite obvious that executive pay at top firms and even at some small ones has gotten completely out of kilter with everyone else’s salaries. More importantly, it has gotten out of kilter with the economy and in some cases with the performance of firms themselves.

Fair Pensions wants big institutional shareholders to act because they represent millions of small shareholders who have stakes in these firms through their mutual funds and their pensions.

We accept that there has been a disconnect between investors, institutions and companies and not enough information.

It is also clear that many small investors will be very concerned about directors’ pay. However a majority probably only really care about pay if it affects the performance of the companies concerned and thus the performance of their investments. The behaviour of some fund managers appears to reflect that view too. Fair Pensions has wider and often laudable goals. But we’re not sure it has quite proved its case, not even with its own chart. But it's welcome to tell us why we're wrong.


18 thoughts on “Are Fair Pensions being entirely fair on fund managers? A Mindful Money view”

  1. JW says:

    Hi Shaun
    The Chinese realised the ‘world’ was looking at their electricity numbers, and hey presto , from somewhere in the 2% growth level they have suddenly jumped much closer to the GDP numbers.
    Also China counts in its GDP numbers stock lying in warehouses which may one day be used in that ‘investment’ bubble.

    Mickey mouse numbers for a looking glass world ( what a mix!)

    1. Anonymous says:

      Hi JW

      I was wondering that myself about the electricity numbers…

      As to the GDP report they seem to produce it with amazing speed and accuracy. Only a fortnight after the end of the quarter we have the number which as I sit here I am trying to recall a revision of.

      Yet we in the UK take not far off twice as long (25 days after the end of the quarter last time) and are subject to often substantial revision. I guess it is just capitalist imperialist weakness and incompetence.

  2. jan says:

    As a non-economist I’ve never understood this concern for growth by economists. From the earth’s point of view we all need to consume less if the earth is to support the growing numbers of people. So personally I would see it as a good thing if the growth in China is going down. There are so many people in China all wanting a western lifestyle with all the vast consumption that entails. However in terms of happiness and contentment consumerism doesn’t work (read Affluenza by Oliver James for proof) and many in the west are now realising this. We are at a turning point where the old economics doesn’t work any more.

    1. Anonymous says:

      Hi Jan

      You make a good point. In our present state we need some economic growth to help us with our debt problem. But more generally it is politician’s I think who drive the “growth” agenda so that they can make promises and bask in the reflected glory. Unfortunately many members of my profession are happy to feed that agenda as you suggest.

      1. Eric says:

        Isn’t it more than just debt, Shaun? I’ve always presumed that growth is necessary to enable a continued improvement is social living standards. Without growth our ability to provide better healthcare, transport infrastructure, defence etc, etc, is limited.

        However, I think our current problems are exacerbated by a (monetary) policy that seeks to drive growth by borrowing. The MPC don’t seem to care where consumers get their money from so long as they spend it on houses and consumables.

        Or am I mistaken?

  3. Mike from Enfield says:

    Hi Shaun,

    When you put it like that, yes it does look very suspicious the way all the figures come nicely together to get the correct answer. Not however suspicious enough for the mainstream media – see for example today’s article on the BBC website on the same subject, where there is no suggestion that there could be any pork pies or even inaccuracies involved.

    When the dominant inputs to ‘the markets’ are dodgy data like this plus overt government manipulation, it seems unlikely that such a system could be remotely stable or sustainable. However for as long as it continues to provide the lucky 1% with a mechanism to enrich themselves, nobody (much) is complaining and it barely seems to matter about the underlying assets the markets supposedly represent. As JW has already said, Mickey Mouse through the looking glass indeed.

    1. forbin says:

      well I have noticed that the standard of BBC journalism has deteriorated to just a bunch of copy & paste artists with a few scribblers thrown in !

      quote from HHGG ” …and nobody complained , well at least nobody of any importance…..”

      it is with growing unease I watch the distortions in the “free” market, which to work correctly require accurate and open information , grow into a new bubble or bubbles or just out right fraud .


      PS: there’s little to do except take your popcorn to your seat and watch the show……

    2. Anonymous says:

      Hi Mike

      As the numbers in China are produced so fast one could argue that much of the data cannot actually be available. For example when we get the UK’s own version -which is in Western terms fast- we only have around 40% of the data and regularly revise it.Yet China a much larger and less homogenous country can apparently do so much better…

      1. Anonymous says:

        Maybe the Chinese numbers are planned in advance, and copied from the 5 year plan …..

  4. forbin says:

    to be honest Shaun you’re right , most western government would die for 7%+ growth

    but some time ago I realized that all this meant was our economy would double in size in 10 years .

    we’ve had about 3% , about the same as France , so with or with out unions but that’s another story

    so now we have China with “7.xx ” growth rate –

    1, CO2 from 2008 figure of 23.5% to 47% ? doesn’t mean much but that’s 7 billion to 14 billion tonnes – in 10 years

    Climate change? well if there’s enough coal and oil , so coal then….

    2,coal consumption – 3.9 billion short tonnes to 7.8billion ( 2012) ( 2.9 Billion Tonnes 2008 ) ( china now inports coal – notably Australia , they tax local consumption but exports are not – WTF ? it still gets burnt!! )

    I won’t go on but if basic maths tells you that what cannot go on , will not …


    PS: Oh I just love this on the World Coal Association web site

    “It has been estimated that there are over 861 billion tonnes of proven
    coal reserves worldwide. This means that there is enough coal to last us
    around 112 years at current rates of production”

    Note the Honey Words – current rate of production !! that means NO GROWTH !!

    theres more but the rest of the readers can look this up themselves

    1. Anonymous says:

      Hi Forbin

      Perhaps the Chinese authorities are thinking along the same lines. From the Wall Street Journal.

      “BEIJING—China raised its 2015 target for solar-electricity capacity, giving a shot in the arm to solar companies that are struggling because of industry overcapacity, weaker global demand and overseas trade disputes.

      Installed capacity for solar electricity should reach more than 35 gigawatts by 2015, up from about seven gigawatts last year, China’s State Council said in a statement posted Monday but dated July 4. China’s previous target was 21 gigawatts.”

    2. JW says:

      Oh God, Forbin, next you will be saying its hot at the moment because of Global Warming/Climate Change/ high CO2 levels.
      Its Hot because its Summer, its the weather you know. Its only a couple of weeks since the Met Office was warning of a wet cool summer because the melting ice caps were forcing the gulf stream south, the day afterwards it flipped back north and we got summer weather.
      As long as you put scrubbers on coal-fired power stations to get rid of SOX, NOX and particulates ( sooty carbon), there is nothing wrong with this sort of electricity generation. Indeed no-one has yet found a more responsive type of generation for load following in mid-merit. The Chinese are installing solar and wind to support their manufacturing output, it is doing nothing to enhance their electricity supply, for that they build coal plant.

      If I put Mickey Mouse together with Climate Change in the same sentence I would be doing a great disservice to the mouse.

      1. forbin says:

        hello JW,

        I think you’ve missed the point and also I said “if there’s enough coal and oil” …….

        the point is that there is in my opinion , from data published , not enough coal and oil for China to become a 2nd United States. ( close to European levels is a possibility)

        For how long is also an issue – ask any oil man or mining company and they will tell you the resource depletion issue is always on their minds – Wall street marks their shares on that metric .

        the ins and out of climate change are too long and get too personel to go into here – I see my mistake was mentioning it at all when my focus was on resources ( and prices thereof).

        a correction to you statement about Coal fired stations response times – yes there is a better option – gas. Its why we have a mix of coal fired ( like nuclear – used for steady load) and gas fired ( along with a little Hydro ) for peak loads , we also suprisingly buy nuclear electricity from France and it works when the wind doesn’t blow as well.

        As for China I see they are power hungry and coal fired stations for a country that had lots of coal is a must. Also they building everything else they can .

        Going back to the UK problem , I agree we are daft to close our coal fired stations , it cheap and relativly clean with the scrubbers

        but most of all regardless of what you believe of climate change – us cutting a few power stations whilst China builds two a week , is a futile gesture to say the least – and will result in power cuts here if we’re not careful


        1. JW says:

          A comment on mid-merit load following. You are describing open-cycle gas fired plant which with pump storage hydro is used for peak loads. Nuclear is only base load, you can’t turn this up or down ( unless you want a hot mess). Mid-merit is where the donkey work is done following the normal daytime shifts in demand second by second. Combined-cycle gas turbines ( CCGTs) are pretty good, but not as good as coal fired ‘kettles’. Its pretty amazing how you can get older coal plant to almost stand on its head to follow fluctuating demand. After decades of trying nothing really does the job as well.

          Sorry if I sounded caustic, bad day yesterday, I really enjoy your posts.

  5. Midge says:

    What are the HSBC flash figures telling us about China and how relevant are they?

    1. Anonymous says:

      Hi Midge

      Here they are.

      “HSBC China Composite PMI™ data (which covers both manufacturing and services) signalled the first contraction
      of output in ten months in June. That said, the rate of
      reduction was only fractional, as signalled by the HSBC
      Composite Output Index posting slightly below the 50.0 no change mark at 49.8 (down from 50.9 in May).”

      So no growth at all in June and in fact a slight contraction. It is the biggest gap I can think of between such a business survey and the official numbers. Are the surveys perfect? No as for example Ireland showed for manufacturing last autumn or on a more minor level the UK’s manufacturing in May. But that wrong? Unlikely…

  6. Noo 2 Economics says:

    Interesting stats and comments. What I take friom this is that China’s exports only account for 10% of it’s GDP, I thought it was more?

    The investment surge seems to explain the PBOC’s reluctance to interfere with liquidity tightening in June as they try to cool down investment (which they agreed to do with the IMF).

    “This means that they have risen at an annual rate of 12.7% in the first half of 2013.

    However this is in spite of the fact that income growth is weakening as this question at the press conference identified.”

    Maybe the Chinese are catching the Western disease of borrowing which would explain ongoing credit growth through the first 5 months of this year which the PBOC is trying to get under control through (amongst other things) refusing to step in when liquidity goes through it’s seasonal summer tightening?

    I do find this laughable:

    “we know that this year China’s urban residents per capita income growth is 6.5% , but in the last year was 9.7%, so there has been a 3.2 percentage points fall.”

    So, with apologies Shaun, in these bizarre times in which we live, up is the new down! Another one for your lexicon.

    About electricity consumption, why does everyone think that GDP growth must mirror electric consumption? Is it not possible that more efficient machines could now be employed to produce more for the same electric usage? Don’t our fridges, TV’s etc consume substantially less electric now than they did 10 years ago? Is it not the case that the Chinese probably still use antiquated machines ansd processes so as they buy new machinery this will result in immense productivity gains for the same amount of resource usage?

    It looks like growth will be dependent on the Chinese consumer for the rest of this year and given lower wage growth rates, that will have an increasing dependency on how much s/he wants to borrow against the back drop of the PBOC steadily tightening credit in an effort to slow credit based investment to prevent overheating. China has emerged, it can longer post double digit growth figures withiout going through violent boom bust cycles.

    I am posing these questions for consideration, not presenting them as truths as I am sure the numbers are unfortunately subject to probably more manipulation than ours, but I am asserting that they are not being manipulated to the extent that fairy stories are being told. If they are, China will crash in the next 12 months.

    1. Noo 2 Economics says:

      Forgot to say by “crash” I mean crash in the true sense – the economy will shrink, not just grow less.

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