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All eyes on pay after Aberdeen forced to explain bonus system

by Eleanor Lawrie on Jan 29, 2014 at 15:05

All eyes on pay after Aberdeen forced to explain bonus system

Now Aberdeen Asset Management has been compelled to clarify its remuneration policy for departing employees, will other listed asset managers face shareholder pressure over executive pay?

Aberdeen responded to criticism of its remuneration policy ahead of its AGM earlier this month by stressing that incoming executive directors will not be entitled to a bonus after they have left the company, except in exceptional circumstances such as ill health.

A spokesperson said the company did not believe in rewarding failure, with executive bonus awards taking account of key financial performance indicators.

Shareholder activism on remuneration has not been commonplace, but since October of last year, shareholders have had a legally binding vote on directors’ remuneration in a listed company. This means more than half have to agree on a policy for it to be passed.

The changes were the brainchild of business secretary Vince Cable, who wants there to be a ‘clearer link between pay and performance’.

The new rules also force firms to reveal how much chief executives are paid as a single cumulative figure, rather than a potentially complex breakdown of their salary and various benefits. If they leave the company, their payoff must also be made public.

Aberdeen was one of the first companies to be affected, but other firms may also come under pressure to make changes so they do not appear to be ‘rewarding failure’.

Paul Hewitt, a business development manager at Manifest, a leading proxy voting and corporate governance support service, believes the fact that Aberdeen issued an update of this kind was significant because the firm was aware of how a less specific policy could look to shareholders.

‘It’s interesting that Aberdeen specifically referred to the fact that it won’t apply in the case of poor performance because they are cautious of what the public response to that kind of announcement could be,’ he said. ‘Investors are a little bit more focused now, and they are less willing to assume the best where there is doubt.’

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