End incentive pay for executives, says reformer
THE savings industry reformer behind a new investment trust aimed at small shareholders said executive pay has become ‘dysfunctional’ and needs overhauling.
Daniel Godfrey, former chief executive of the Investment Association, said executives at large firms should receive at least half their salary in shares that cannot be cashed in for seven years, to promote responsible management.
‘Our view is that companies should get rid of incentive pay altogether and the board should performance-manage individuals rather than trying to fine-tune things through ever more complex, incentive pay structures,’ said Godfrey, who hopes to raise £125 million to list his investment vehicle The People’s Trust next month.
‘It allows them to focus on long-term sustainable objectives rather than quarterly earnings. It would also give executives an incentive to leave a company in good shape.’ Godfrey, who said he will lead by example with his own pay as chief executive at the trust, accepts that significant pay reform remained a long-term ambition.
The former fund manager was ousted from his £533,000-ayear job at the Investment Association after battling for more rapid reforms, including transparency for smaller shareholders.
The People’s Trust has raised set-up costs by crowdsourcing from 2,500 individuals so there is no major commercial backer, he said. Godfrey said he wanted to encourage ‘longterm, sustainable investment’ and has appointed five fund managers operating under seven-year contracts, including Mark Niznik at Artemis.
Godfrey added: ‘The focus on short-term returns affects the way companies are run.
‘Of course we will hit turbulence at times. But when we do, you’ve got to put your seatbelt on, not your parachute. We will invest for the long term and invest in good stewardship.’