Friday, 19 April 2013

The CofE and Executive Remuneration

Updated Friday to add Church Times and Independent articles.

The Church of England Ethical Investment Advisory Group has today published its Executive remuneration policy.

The accompanying press release starts

The national investing bodies of the Church of England have today published a policy on executive remuneration adopted on the recommendation of the Church’s Ethical Investment Advisory Group (EIAG).

With the UK company AGM season getting under way, the national investing bodies will use the policy to determine their voting on remuneration reports and their engagement on executive remuneration with the companies in which they hold shares.

EIAG Chair James Featherby said: “Executive directors perform difficult and important roles that require high levels of skill, enterprise and innovation. All staff should be rewarded fairly and executive director roles understandably command good salaries. Our recommendations focus on bonuses. We want to see lower annual bonuses and greater emphasis on rewarding executives who manage ethical, social and environmental issues well and so deliver enduring corporate success over periods of five to seven years.”

The full press release is copied below the fold.

There is, not surprisingly, much press interest.

John Bingham in The Telegraph Church of England’s £8bn assault on ‘culture of entitlement and greed’ in City bonuses

In an overhaul of its own investment policy to be announced today, the Church – which controls more than £8 billion of assets – announced it will attempt to vote down any bonus worth more than an executive’s basic salary…

Rupert Neate in The Guardian CofE tells its fund managers to vote down excessive bonuses

The Church of England has instructed its fund managers to “challenge the bonus culture” and vote down pay policies that grant bosses more than 100% of their salary in annual bonuses…

Hannah Kuchler in the Financial Times Church loses faith in big bonuses

The Church of England has vowed to vote against outsized bonuses and short-term incentives as it tries to revive the spirit of last year’s shareholder spring at upcoming annual meetings…

Madeleine Davies in the Church Times Church investors urged to challenge ‘vastly unequal’ bonuses

Bonuses awarded to executive directors that exceed 100 per cent of their basic salary, should be challenged by the national investing bodies of the Church of England, a new policy published by the Church’s Ethical Advisory Group (EIAG), states.

The policy on executive renumeration has been adopted by the investing bodies, which will use it to determine their voting on the renumeration reports of the companies in which they hold shares…

John Collingridge in The Independent Church of England brings multi-billion voting clout into play against excessive City bonuses

The Church of England plans to use its £3 billion voting clout to tackle excessive City bonuses as it seeks to reignite last year’s “shareholder spring”.

The Church, which holds a significant amount of its £8 billion assets as shares in companies, said it will challenge the City’s bonus entitlement culture by rejecting soaring director pay deals as the annual meeting season gets under way.

Church of England ethical investment Executive Remuneration
19 April 2013

The national investing bodies of the Church of England have today published a policy on executive remuneration adopted on the recommendation of the Church’s Ethical Investment Advisory Group (EIAG).

With the UK company AGM season getting under way, the national investing bodies will use the policy to determine their voting on remuneration reports and their engagement on executive remuneration with the companies in which they hold shares.

EIAG Chair James Featherby said: “Executive directors perform difficult and important roles that require high levels of skill, enterprise and innovation. All staff should be rewarded fairly and executive director roles understandably command good salaries. Our recommendations focus on bonuses. We want to see lower annual bonuses and greater emphasis on rewarding executives who manage ethical, social and environmental issues well and so deliver enduring corporate success over periods of five to seven years.”

Policy analysis

The policy states that the EIAG and national investing bodies “value the contribution to society of those who lead our public companies”. It accepts that, while “it is a fundamental tenet of Christianity that all individuals are equal before God”, differentials in remuneration can be justified.

“But”, the policy states, “it is important that such differentials are justified by some reasonable calculus linking higher rewards to greater contribution, skills and responsibility and that those who are lower paid are also rewarded fairly”.

The analysis in the policy of trends in executive remuneration finds that, in FTSE 100 companies as a whole, executive remuneration has become misaligned with revenues, profits and shareholder returns.

Concerns focus on annual bonuses which “appear to have come to be regarded as an entitlement” for executive directors and can encourage corporate short-termism.

Policy recommendations

The policy recommends a number of principles for executive remuneration.

It states that “the national investing bodies should challenge the bonus culture” and should not expect executive directors in receipt of competitive salaries to be awarded annual bonuses of more than 100% of base salary for target performance.

“Awards of more than 100% of base salary can only be justified if an executive director has delivered extraordinary results through exceptional performance to the significant benefit of shareholders.”

The policy stresses the importance of schemes prioritising long-term over short-term performance. It argues that companies should have long-term incentive plans for executive directors covering periods of five to seven years which should be paid in shares held for the long-term.

Companies are encouraged to reward performance on ethical, social and environmental issues as well as financial issues. They should, for example take into account “ethical business conduct such as tax, bribery and treating customers fairly”, “respect for human rights and co-operation with those seeking to create the right conditions for a just society (e.g. NGOs, government)”, and “environmental sustainability (e.g. greenhouse gas emissions, water efficiency)”.

Finally the policy states that “companies should approach remuneration and reward in a holistic way for all staff… They should disclose the way in which they monitor and manage internal pay differentials and trends”.

The Church of England’s National Church Institutions are all transparent about the remuneration they offer and the differentials within their organisations. Their annual reports each disclose remuneration ratios - both between the highest and lowest paid in the organisation, and between the highest paid and the median.

The policy concludes: “The system and culture of executive remuneration that has developed over the last 30 years, today faces unprecedented questioning. Turning the tide will take courage and leadership from both the non-executive directors who determine remuneration and the executive directors who receive it… We will work collaboratively and in particular support companies who take risks and model a different way of doing things.”

Notes

The Church of England Ethical Investment Advisory Group (EIAG) makes recommendations on ethical investment policy to the Church of England’s three national investing bodies. These are the Church Commissioners for England, the Church of England Pensions Board and the CBF Church of England Funds managed by CCLA. Together they hold assets in excess of £8bn. For further information visit www.churchofengland.org/about-us/structure/eiag.

The EIAG includes representation from the General Synod, the Archbishops’ Council and the Council for Mission and Public Affairs as well as the investing bodies.

The EIAG has no investment powers of its own but acts in a wholly advisory capacity. It is the responsibility of the Trustees of each separately constituted investment body to decide whether to implement the advice given.

The national investing bodies were active participants in the ‘Shareholder Spring’ in 2012. They pulled together a coalition of investors with more than £1.5 trillion of investments to write to the Daily Telegraph to express concern about executive remuneration as last year’s AGM season opened and supported only about a third of UK remuneration reports.

The new ethical investment policy on executive remuneration.

Posted by Peter Owen on Friday, 19 April 2013 at 10:04am BST | TrackBack
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Categorised as: Church of England
Comments

We have £8bn in funds?! Does anyone know what they are for (apart from the pension fund obviously)?
I have always gainsaid anyone claiming the church is 'wealthy' - my parish certainly isn't, apart from in ancient buildings that cost a fortune to maintain. But maybe I'm wrong.

Posted by: Cathy on Saturday, 20 April 2013 at 9:26am BST

Cathy

All the figures below are for 2011, the latest available.

Of the total the Church Commissioners (CC) had assets valued at £5.2 billion. These assets generated income that allowed them to spend
* £115m on clergy pensions
* £38m supporting parish ministry (mainly grants to needier dioceses)
* £31m supporting archbishops and archbishops
* £8m supporting cathedrals
and a few millions on other things.

That is actually more than the income, but several years ago it was decided that the only way that the church could continue to be able to pay clergy pensions was to use CC capital. In addition the CC are now only responsible for pensions earned by clergy before 1998. Later service is the responsibility of the CofE Pensions Board which has assets of £785m for clergy pensions and £378m for other (lay) pensions.

The remainder of the £8bn is invested by CCLA on behalf of many CofE bodies at all levels (eg parishes, cathedrals, deanery synods, dioceses and Church of England schools).

If you want more detail visit these pages for, respectively, the CC, the Pensions Board and CCLA.

http://tinyurl.com/cxflvdj
http://tinyurl.com/cj2o6c4
http://www.ccla.co.uk/

Posted by: Peter Owen on Saturday, 20 April 2013 at 3:47pm BST

Thank you. It still seems like a lot of money, but that's a helpful clarification.

Posted by: Cathy on Saturday, 20 April 2013 at 9:33pm BST
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