Legal & General shows its guns

ECGS received an interesting article from London by Mark Kleinman, City Editor of Sky News. Public companies which fail to explain the performance measures behind bonus targets for top executives will risk the biggest investor in London's stock market voting against their pay policies, it has warned.

The edict was contained in a letter sent by corporate governance chiefs at Legal & General Investment Management (LGIM), which owns roughly 3% of the FTSE-100 index, giving it a powerful voice in corporate boardrooms.

LGIM wrote to the chairs of the remuneration committees of all FTSE-100 companies late last month as a prelude to the introduction of new rules that will involve giving investors a binding vote on future pay policies. According to the letter, a copy of which has been leaked to Sky News, LGIM wants blue-chip companies to go further in demonstrating restraint following a period in which dozens of major corporate names have suffered embarrassing revolts over lavish executive payouts.

The series of rows prompted Vince Cable, the Business Secretary, to pave the way for a toughened new pay regime that comes into force on October 1, which includes binding votes for company investors.

LGIM's letter said that companies should not attempt to hide behind "commercial sensitivity" as a reason for failing to disclose granular details about performance targets, the investor said.

"Where companies believe that there is a genuine reason why some of these historic targets may continue to be commercially sensitive, we would require a full explanation as to why it is considered sensitive and for how long it will remain so". LGIM will consider a vote against a company that considers all of their performance measures to be commercially sensitive for an indefinite period."

LGIM said new chief executives of Britain's biggest public companies should be obliged to put their own money at risk by acquiring shares in their businesses. Owned by the insurance group Legal & General, LGIM also said that companies should refrain from making significant 'golden hello' payments.

                                                                                                                                                                                                                                               Pierre Henri Leroy, Paris, September 13 2013