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Jan 26, 2017

BlackRock calls for UK companies to rein in remuneration

Threat of shareholder rebellion if excessive pay not dealt with

BlackRock has called for UK companies it invests in to rein in remuneration or face shareholder rebellion.

The US fund manager, which controls $5.1 tn in investments, has written to the chief executives of more than 300 companies in the UK to warn them it will vote for increases in executive salaries only if they are matched by increases in workers’ pay.

In the letter, Amra Balic, BlackRock head of investment stewardship in Europe, says executive pay should be linked to performance, ‘by which we mean strong and sustainable returns over the long term, as opposed to short-term hikes in share prices.

‘We consider misalignment of pay with performance as an indication of insufficient board oversight, which calls into question the quality of the board. We believe shareholders should hold directors to a high standard in this regard.

‘In case of a significant pay increase year-on-year that is out of line with the rest of the workforce, BlackRock expects the company to provide a strong supporting rationale.’

BlackRock’s letter was accompanied by a set of guidelines the fund manager expects companies to adhere to, including the expectation that pension contributions for executives be in line with that for all other employees.

The shareholder rebellion against excessive pay has gained momentum amid concerns about wealth inequality both in the UK and worldwide. Eight blue-chip companies, including BP, were hit by shareholder rebellions over pay last year. In April 2016, 60 percent of shareholders voted down plans to pay BP chief executive Bob Dudley £14 mn ($18 mn) after the oil giant cut jobs and froze employees’ pay while making record losses.

The opposition to pay increases for bosses in poorly performing companies is being heard, with Aberdeen Asset Management announcing it has frozen salaries for those earning more than £75,000 at the end of a difficult year.

This article first appeared in Corporate Secretary sister publication IR Magazine.