Pension funds have warned the UKs leading 350 companies they could face shareholder opposition if the pay increases and bonus payments they make to executives arent justified by long-term performance.
In a letter sent to the chair of the FTSE 350 companies today, the National Association of Pension Funds claimed that 'too many' companies had allowed the link between executive rewards and company performance to weaken in recent years.
Last year saw an outbreak of opposition to executive pay and bonus packages at company's annual general meetings which some commentators dubbed the 'shareholder spring'. The NAPF believes that firms which have failed to address those concerns could see this repeated in 2013.
Joanne Segars, chief executive of the pension funds body, said: 'Shareholders were very vocal last year, and those companies that have failed to take a robust stance on boardroom pay should expect similar opposition this spring. Too many companies have allowed the link between pay and long-term business performance to weaken in recent years.
'Companies should keep executive base pay rises in line with the rest of the workforce, and those that deviate from that should have a good explanation ready. Bonus targets should be challenging and allied to the long-term growth of the business.
'Our members will push back on executives who compare themselves with others to try to justify pay rises. So-called peer comparisons have been a major factor behind rising boardroom pay levels.'
In its letter, the NAPF called for variable, or performance-related, pay to be 'genuinely stretching' and determined by results which support the long-term growth of the business.
Remuneration committees should 'use discretion' when finalising bonus payments and allocating shares to executives to ensure these rewards are aligned with the success of the business over time and returns on capital are being taken into account, it added.
Segars noted that the rules on executive pay were due to change later this year with the introduction of binding shareholder votes on executive remuneration packages.
'It is important that companies and their institutional shareholders work closely together to ensure the new rules deliver high standards,' she added.
Last month, the NAPF teamed up with other institutional investors to publish a discussion paper setting out principles companies should apply when changing their reward structures in preparation for the new requirements.
