Corporate pay is ‘out of proportion’: Norges CEO Tangen
Joan Ng
[DAVOS] Corporate boards globally are falling far short on executive pay packages, and many chiefs are paid too much, said Nicolai Tangen, chief executive of Norges Bank Investment Management, at the World Economic Forum.
Norges manages the Norwegian Government Pension Fund Global, which has assets of some 12 trillion kroners (S$1.6 trillion). According to its website, the fund is the largest single owner in the world’s stock markets – owning almost 1.5 per cent of all shares in the world’s listed companies. It owns stakes in around 9,000 companies worldwide.
Speaking in Davos on Wednesday (Jan 18), Tangen said executive pay has “gone out of proportion”.
In 2021, as the global economy was still feeling the negative effects of the pandemic, the median pay of chief executive officers (CEOs) at S&P 500 constituent companies went up 15 per cent.
“It’s never been a worse time to show that kind of corporate greed because we have this (cost of) living crisis,” Tangen said. “It’s just not the thing to do in this particular time period.”
Such behaviour is bad for business, he added, as paying CEOs too much can create tension within the company.
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Norges is scrutinising pay packages of roughly 150 companies on the S&P 500 whose CEOs are paid US$20 million per annum or more. The average pay package for CEOs in the index is roughly US$15 million, Tangen said.
But the asset manager is less concerned with absolute figures and more concerned with pay structures. The best pay packages are linked to value creation, don’t allow for resets in exceptional situations (such as the Covid-19 pandemic), vest over a long period, and are stock-based rather than option-based, Tangen said.
When pay packages don’t meet its standards, Norges votes against them.
“Afterwards, the companies typically invite us to a dialogue,” Tangen said, adding that such dialogues are typically fruitful.
Norges is one of the most vocal asset managers globally on environmental, social and corporate governance (ESG) considerations.
It is often compared with US-based asset manager BlackRock, which has also been exercising its votes as an institutional shareholder to effect change on the ESG front.
One major difference between Norges and BlackRock, however, is the stance on executive pay.
In fact, BlackRock is among those companies who had raised compensation for its top executive. CEO Larry Fink was paid US$36 million in 2021 – a 21 per cent increase.
As a listed fund manager whose top executives are themselves paid well, Tangen said BlackRock lacks the credibility to lecture its portfolio companies on pay. “And that’s why it’s important for us to raise this issue.”
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