Investor warns companies against paying back-door hand outs

The Co-operative Asset Management today (6 April) sent a warning to companies not to pay their executives discretionary awards through the ‘back-door' if performance targets have been missed due to the recession.

The leading responsible investor believes that the upcoming AGM season will be littered with companies seeking to pay discretionary awards to management who have failed to hit pre-determined performance targets set for incentive payments. Its concerns have been heightened by recent calls from remuneration consultants for ‘flexibility' around executive pay schemes.

Pat Wade, Corporate Governance Manager, at The Co-operative Asset Management said: "A failure to align executive remuneration to the interests of shareholders lie at the heart of the current recession.

"As a responsible investor we want to share in the long-term success of businesses in which we invest. But if a company fails to create value for its shareholders, it's totally inappropriate to grant rewards to management that are disproportionate to shareholder returns - and the money they invest for their clients - no matter how difficult the economic situation.

"We urge remuneration committees to show restraint and constraint, and we will be following the issue of discretionary payments closely throughout AGM season, along with any changes being proposed to incentive schemes. We will not tolerate any hand outs being made through the ‘back-door'."

As a responsible shareholder, The Co-operative Asset Management believes good standards of corporate governance are essential in companies in which it invests. Its position on governance has not been taken in response to the recent financial crisis or downturn. For example:

It voted against Northern Rock remuneration reports prior to the credit crunch,

It has refused to support RBS executive remuneration continuously since 2002,

It was one of few institutional investors to vote against the RBS/ABN-AMRO deal,

In 2002, it became the first institutional investor to make its entire voting record available to the public on-line.

The Co-operative Asset Management uses a distinctive responsible investment approach that integrates environmental, social and governance (ESG) analysis alongside financial considerations when selecting companies for investment. It believes the approach enables more informed investment decision-making.