The Church of England is putting morality at the heart of the debate over executive pay, telling companies it will vote against “excessive” bonuses it believes are unjust.
The Church Commissioners, which manages a £5.3bn investment and property portfolio, has informed companies in which it holds a stake that it will not support any pay scheme where top managers would receive bonuses in excess of four times their annual salary.
“The Church exists to spread the gospel and the gospel is about justice for everyone,” a spokesman said. “That is why our ethical investment committee believes that people should be paid what they are worth, but not more than that.”
Placing such specific limits on pay vaults the Church to the centre of a heated debate over whether investors are putting enough pressure on large companies to rein in multimillion-pound bonus awards.
Several large shareholders in HSBC on Friday backed the bank’s plans to limit senior executives’ maximum bonus and long-term share pay-outs to 10 times basic salary.
“The [Church’s] general approach is that it is sufficient for bonus schemes …to allow for performance awards of up to three times salary,” the Church spokesman said.
According to remuneration experts, dozens of large UK companies exceed that threshold.
Financial services companies typically have some of the biggest multiples, with Bob Diamond, chief executive of Barclays, awarded bonus and long-term incentive payments valued at £8.8m in 2010 – 35 times his base salary of £250,000.
“The Church’s stance reflects concern among regulators and a number of non-executives that current levels of executive pay are not sustainable and ‘something must be done’,” said Tom Gosling, PwC partner in London. “The question is, what is an overly large bonus, and why is 400 per cent the right number rather than 100 per cent, or 1,000 per cent?”
The Church declined to comment on which companies’ pay proposals it intends to reject.
But it has long held a policy where it does not invest in companies it does not believe to be ethically appropriate. It holds no shares in tobacco, alcohol, or arms makers, for example, and has in the past called on governments to take a far more interventionist role in curbing the excesses of financial markets.
On Friday, it stressed that it did not object to competitive salaries for senior executives, or bonuses that “genuinely” rewarded success and aligned the interests of executives and shareholders with society as a whole. “However, we are concerned by the issue of excess in remuneration – we believe that the remuneration packages offered to many senior executives go beyond what is either required or equitable.”
The Church, which holds nearly £3.5bn in fixed interest, UK and overseas equities and another £1.8bn in property holdings, loans and short-term deposits, boasted a return of 15.2 per cent on the fund in 2010 after being hit hard in the financial crisis.
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