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Directors of pay policy ‘should face an annual ballot’

May 21, 2009

Miles Costello and Robin Pagnamenta

Leading investor groups are calling for company directors in charge of pay policy to stand for re-election every year, as the City steps up its campaign to improve boardroom practice on remuneration.

The Co-operative Asset Management, an ethically minded investment group, said that chairmen of remuneration committees in all listed companies should put their jobs to an annual shareholder vote.

Abigail Herron, corporate governance analyst with the Co-op, said: “It would enable shareholders to hold the chairmen of remuneration committees to account, rather than have to wait three years until they come up for re-election.”

It is understood that the Association of British Insurers (ABI), whose members control more than 15 per cent of the stock market, is considering making a similar call as part of its efforts to make companies more transparent and accountable on pay. The ABI is likely to recommend the annual re-election of committee chiefs as a “gold standard” for listed companies.

Ms Herron said that the Co-op’s new policy grew out of its frustration over pay practices at Royal Dutch Shell, the oil group, whose remuneration report was defeated by investors at its annual meeting on Tuesday.

The Co-op, alongside Standard Life Investments, spoke out against Shell’s discretionary remuneration policy before the vote. The two managers condemned share awards made to company directors even though Shell missed a key performance target.

“There are only so many times you can vote against a remuneration report and see no action taken,” Ms Herron said.

The Co-op is to write to all companies in which it invests, outlining its revised approach. Its top ten shareholdings include GlaxoSmithKline, the drug group, HSBC, the bank, and Rio Tinto, the miner.

At Shell’s meeting, Jorma Ollila, its chairman, promised to consult shareholders on ways to improve practice.

Shell said that it had already agreed to some changes in its pay arrangements before the defeat on Tuesday but would consider wider reforms.

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