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View the article online at http://citywire.co.uk/wealth-manager/article/a731104

All eyes on pay after Aberdeen forced to explain bonus system

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

Hewitt believes Aberdeen’s move could set a precedent for AGMs in the future.

‘Reputationally speaking, in the financial and banking sectors that is going to be something to look out for in the coming earnings season. They are setting their stall out for shareholders, to see where they are happy with things or not.’

Peter Michaelis, head of sustainable and responsible investment at Alliance Trust Investments, predicts the asset management industry ‘definitely will’ see others following Aberdeen’s lead, now that shareholders can throw out policies they find unacceptable.

‘Now it is binding, it will be something boards take more seriously,’ he said. ‘From a societal point of view, executive pay has risen disproportionately to the rest of the economy. Where shareholders like us can get involved is to make sure that pay is linked to performance – that is the first step.’

But he said this does not spell the end of big bonuses.

‘The remuneration committee are trying to make pay and policy reflect what these leaders are achieving. But the proof is in the pudding. Has that really affected what chief executives are being paid? I don’t think it has that much.’

Dominic Johnson, founding partner and chief executive of Somerset Capital Management, added: ‘Bonuses should be for exceptional performance. If someone is being dismissed, how can they perform exceptionally? The whole point is they should be variable.’

 But he does not think more regulation would be the answer. He prefers a cultural change, which he believes would be ‘more powerful’.

Johnson is also deputy chairman of the New City Initiative, a think-tank of 43 independent asset management firms that aims to provide an expert voice on financial regulation.

He said: ‘I would prefer there was not regulation around this but anything that gives shareholders more power is a good thing. I admire what [Aberdeen chief executive] Martin Gilbert (pictured) has done with that company hugely and if other firms follow suit is great.’ 

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