Finance

Mark Gilbert is a Bloomberg Gadfly columnist covering asset management. He previously was a Bloomberg View columnist, and prior to that the London bureau chief for Bloomberg News. He is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”

(Corrected )

"Where does an 800-pound gorilla sit?" goes the riddle. "Wherever it likes," is the answer. Norway's $1 trillion wealth fund risks throwing its weight around in ways that exceed its authority, interfering in the sovereignty of other nations.

This year, the fund has voted against remuneration proposals at more of the companies it holds stakes in, its global head of ownership strategies Carine Smith Ihenacho told my Bloomberg News colleague Mikael Holter in an interview.

That raises a question. Should the investment arm of one sovereign nation be using its financial muscle to influence salary policies in other sovereign nations, setting principles which then guide how it votes in particular examples? No matter how laudable its aims, this seems like a clear case of mission creep.

The fund's sheer size -- it owns about 1.5 percent of every listed company in the world and invests in almost 9,000 companies -- gives it clout. But its status as an arm of the government of Norway should make it wary of behaving like just another custodian of assets.

In a position paper published in April, the fund said it would back remuneration policies that are "driven by long-term value creation and aligns CEO and shareholder interests." Pay packages should be transparent, pension entitlements should be only "a minor part" of total packages, while a "substantial proportion" should be in the form of equity that's locked in for "at least five and preferably 10 years."

It went on to say, though, that "we believe that the pay transparency that comes with this structure will contribute to moderating pay levels in the longer term." What right does Norway's fund have to seek to moderate pay levels in other countries, even as a secondary side-effect of its policies? Its own CEO, Yngve Slyngstad, is moderately compensated compared with other executives in finance, but still takes home a multiple of the national average salary. 

To be sure, pay inequality, whether it's how much CEOs earn versus national averages or the yawning gap between what women get paid compared to men, is an important issue. But there's no one-size-fits-all approach that will work across different societies. So not only is trying to impose pay norms across borders unacceptable in principle, it's unworkable in practice. 

There's nothing particularly objectionable to most of what the fund is proposing, and no question that its approach is thoughtful, systematic and generally well-intentioned. Many asset managers adopt very similar approaches as part of their corporate governance duties. Moreover, it practices what it preaches, fully disclosing how it compensates its executives.

And Norway is a model of transparency when it comes to disclosing pay. Anyone in the country can log in to the tax authority's website using their national ID number and see how much their fellow workers or neighbors or pop stars earn.

That's probably contributed to the nation coming third in the World Economic Forum's gender inequality ranking, behind only Iceland and Finland in paying women almost as much as men.

But the fund isn't just any fund. It's an arm of the government of Norway. It's free to avoid investing in companies where it objects to a perceived disregard for human rights or industries it deems to be damaging to the environment. But that's qualitatively different from trying to steer executive compensation levels in companies it is invested in; rules about that should be the prerogative of the government of the company's home country.

"This has become a societal issue," Slyngstad said when the fund released its report on CEO salary packages. He's right; but it's for individual societies to debate, decide and potentially legislate about -- not for one country's wealth fund to dictate to another's companies.   

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(Corrects spelling of CEO's name in sixth paragraph.)

To contact the author of this story:
Mark Gilbert in London at magilbert@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net