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High pay targeted by huge Norwegian fund

Do Not UseDo Not Use 2/05/2016
Norwegian flag © Getty Images Norwegian flag

The world's biggest sovereign wealth fund plans to target excessive executive pay.

BP chief executive Bob Dudley: BP shareholders rejected a £14m pay package for chief executive Bob Dudley © Getty Images BP shareholders rejected a £14m pay package for chief executive Bob Dudley

Norges Bank is currently looking for a company that it considers to be overpaying executives, and will then use that firm as an example in a report to outline the fund's position on pay.

With stakes in more than 9,000 companies and worth $870bn (£595bn), Norway's fund has a powerful voice.

In the UK, there have recently been a series of shareholder revolts over pay.

Last week 72% of shareholders in engineering firm Weir Group rejected a proposed pay scheme. That vote was binding and the company will now have to come up with a fresh plan.

'Active stewardship'

In the past Norway's wealth fund has not taken a position on executive pay, so its focus on the issue is being seen as significant by the fund management industry.

"The Norwegian state sovereign wealth fund has always been quite passive in how it has approached its shareholdings, if a company has done something it hasn't liked it's sold the shares and walked away," said Russ Mould, investment director at AJ Bell.

"I think now it is taking a more active stewardship approach, i.e. debating with the company," he added.

Last month 59% of BP shareholders voted against a 20% pay rise for chief executive Bob Dudley, that would have netted him £14m.

'Remarkable' moment

The vote against the increase was non-binding, but BP's chairman said at the annual meeting that the sentiment would be reflected in future pay deals.

That was a "remarkable" moment according to Stefan Stern, a director at the High Pay Centre, a think tank which monitors executive salaries.

"I do think there is a feeling that things have been getting out of hand," he said.

"Shareholders have signed off on pay structures they didn't understand and now we're seeing buyer's remorse," he added.

Three-year cycle

In the UK, every three years shareholders receive a chance to vote on the way the formula for executive pay is constructed.

That vote is binding, so the board needs the support of a majority of shareholders, to secure the deal.

Votes between these three-year cycles are not binding, but can create embarrassment for the executives involved.

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