Call to scrap incentives for top CEOs

THE world’s largest sovereign wealth fund is pushing for a radical overhaul of CEOs’ pay, arguing that the long-term incentive schemes favoured by many companies are flawed and should be scrapped.

Norway’s $910-billion (R12.5trillion) oil fund, which owns the equivalent of 1.3% of each listed company in the world, will start pressing companies to end such incentives. It would prefer CEOs to own substantial stakes in their groups for at least five, and preferably 10, years. It will also urge boards to have pay ceilings.

“Over time, we expect longterm incentive plans to be gradually phased out,” said Yngve Slyngstad, the head of the oil fund.

The fund’s intervention is sig- nificant because it is one of the most influential investors, especially on responsible investing. But it has shied away from speaking out about pay because of a fear of being seen as moralising from the safety of the egalitarian Nordic region.

Slyngstad said that the issue of how much a CEO was paid was crucial for ensuring that a company focused on long-term value creation.

“In our opinion, neither society at large, nor regulators, investors, boards or even CEOs, are comfortable with where we are. Most people recognise there is a need for change,” he said. The oil fund believed that pay should be “long-term, simple and transparent”, Slyngstad said.

Long-term incentive plans have become important for the pay of many CEOs. They account for 57% of total pay for CEOs in the US, while they are double the level of base salary in the UK, according to research cited by the fund.

The oil fund was due to meet chairmen and other investors on its new pay policy. It was keen not to set a specific level for acceptable pay but would ask boards to set the maximum a CEO could earn each year.

The fund has already voted against the pay policies of some of the biggest companies in the world. Last year it voted against the pay schemes of Alphabet, Goldman Sachs, JPMorgan and Sanofi. — © The Financial Times