U.K. Should Abandon Executive Pay Benchmarks, Pension Group Says

U.K. companies should abandon the practice of setting executive pay against benchmarks because it leads to an “upward spiral” in compensation, according to a pension-fund adviser.

Directors’ pay is inflating, while profit increases are muted or non-existent, the Local Authority Pension Fund Forum, which represents funds with 115 billion pounds ($174 billion) of assets, said in a report published today.

“A specific issue the forum has highlighted is the unsustainable practice of providing new executives with pay packages that are equal to, or greater than, that available to their predecessors,” the group said in a statement. “This has led to an upward spiral in executive pay resulting in ever- greater pay inflation for top-level employees.”

Excessive employee compensation at U.K. banks is denting public confidence in capitalism in the wake of the Libor scandal, Simon Walker, director general of the Institute of Directors, a management lobby group, said in a March 12 speech. Investors protested against pay plans at companies including Barclays Plc (BARC), Aviva Plc (AV/), UBS AG, Inmarsat Plc (ISAT) and WPP Plc (WPP) last year amid investor concern about compensation.

Pay committees should consider setting the total compensation of incoming executives below that of a predecessor to reflect “the reality that, with any new job, there is a period of learning and adjustment.”

Companies should also be more open about their hiring decisions, consider a broader pool of candidates for executive roles and publicly advertise directors’ jobs, the group said.

-- Editors: Jon Menon, Steve Bailey

To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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