Investors at loggerheads with business over bonuses

INVESTORS are at loggerheads with company bosses over key issues such as performance incentives, the availability of key skills and value creation, according to accountants PwC.

The global survey of 438 investment professionals, which was benchmarked against the views of 1,400 chief executives, found that 73% of investors believe a company’s purpose centres on creating value for shareholders, compared to 16% of CEOs.

Investors are significantly more likely than CEOs to consider misaligned performance incentives as a barrier to change. Almost half of investors surveyed flagged this as a major concern compared to only 17% of chief executives.

In the area of remuneration reporting, equity investors are particularly likely to identify misaligned performance incentives as an issue (42%, compared to 28% of fixed income respondents).

This most likely reflects the tension that exists between companies and their shareholders, as well as equity capital providers’ desire to have more say on company strategy since they bear the residual risk, PwC said.

Hilary Eastman, investor engagement director at PwC, said: “From our work with the investment community we know they tend to be sceptical of remuneration numbers. Companies clearly have more visibility into how management is remunerated than investors have from the outside.

“These businesses may have to do more to link their remuneration policies and key performance indicators to overall strategy and risk management, given the number of investors who think companies need to change the way they measure success and hold themselves accountable.”

According to PwC, the various divergence between company and investor opinion could be attributed to a reporting gap, whereby companies and investors are finding it difficult to agree what information is needed in order to form accurate opinions.

The findings come after some 59% of shareholders rejected BP chief executive Bob Dudley’s £14m pay package.

The vote, while not binding, is one of the biggest ever investor pay rebellions since 2012’s Shareholder Spring’ when investors staged a series of pay revolts in the AGM season.