Don't expect Alliance Trust revolt to lead to fund management pay shake-up
The shareholder revolt over executive remuneration at Alliance Trust's AGM last week may have made for inflammatory headlines, but it's unlikely to cause big enough tremors to inspire many fund managers to shake-up their pay practices.
Katherine Garrett-Cox, chief executive of Alliance Trust, received a bonus of 420k last year (on top of a 405k) salary, much to the chagrin of shareholders, who suggested she should only have received half of that.
Shareholder anger at what's perceived to be excessive executive remuneration in the financial sector is picking up - as anyone who witnessed Lloyds Banking Group's AGM in Edinburgh last week will testify - but in terms of shaking up pay in the fund management sector, this is unlikely to create many waves.
"The vast majority of fund managers are private companies and have little incentive to increase fixed costs, so there's always going to be a heavier weighting towards bonuses," says Tim Wright, asset management remuneration director at PwC. "Publicly listed firms have to strike a balance between what's acceptable to shareholders and remaining competitive with private firms."
He adds that PwC's research, to be released later this year, initially suggests that bonuses are up across the board within asset management.
Certainly executive pay within publicly-listed fund managers is on the increase - by 33%, according to analysis from Pensions & Investments magazine.
Scotland may have the likes of Scottish Widows Investment Partnership, Standard Life Investments and Alliance Trust, but it is also home to private firms like Baillie Gifford, Martin Currie and a whole host of boutiques.
"Fund managers have always linked bonuses to performance fees, so the simplistic argument is that if you don't perform, you don't get paid," says Richard Parkhouse, chief executive of asset management remuneration specialist PRPi Consulting. "We don't see any evidence of a wholesale move away from placing a greater emphasis on bonuses, rather than fixed pay."
Alliance Trust is relatively progressive in terms of tying bonuses to long-term performance - 50% of director bonuses are paid in shares. What's more, 70% of its employees have an average holding of 5,000 shares - or around 18.7k each at the current (depressed) price - so have something of an incentive to stick around.
Nonetheless, staff numbers continue to decline. In 2009, it reduced headcount by 14% to stand at 268 at the end of the year, but this figure shrunk by a further 5% to 256 in 2010. Staff costs have increased by 9% this year, though, to an average of 70.3k per head from 61.6k last year.
