Fidelity urges ousting of boardroom pay chiefs if investors rebel

A top City investor is urging ministers to back a proposal that would force out the chairs of companies' boardroom pay committees if a big minority of shareholders fail to back their annual remuneration plans.

Sky News has learnt that Fidelity International, which has £19bn invested in listed UK equities, will include the suggestion in its response to the Government's green paper on corporate governance and executive pay.

The idea will go beyond many of Fidelity's peers, and be accompanied by demands for an annual binding vote on directors' pay packages.

In its submission to the Department for Business, Energy and Industrial Strategy - a copy of which has been seen by Sky News - Fidelity's head of corporate finance, Trelawny Williams, said an annual binding vote on pay policy would make boards more accountable and provide "greater clarity on the role and responsibilities of all parties".

It said that in addition to the binding vote, which is currently held every three years, being made an annual resolution, the chairs of remuneration committees should be held personally responsible.

"In the event a company receives less than 75% shareholder support for either its binding vote on pay policy or its advisory vote on pay practice then the chairman of the remuneration committee should step down from that role and be replaced by another director as we believe this will make individuals more accountable," Fidelity said.

Fidelity has been among the more strident institutional investors in tackling what it believes are excessive, or poorly structured, pay deals, warning companies four years ago that it would vote against companies which failed to extend long-term incentive plan holding periods to three - and subsequently five - years.

That demand has led Fidelity to vote against the remuneration reports of more than half of all FTSE-350 companies in each of the last three years.

The fund management giant, which oversees £224bn in assets globally, will warn against making the annual vote on pay outcomes binding on the basis that such a move would create "serious contractual complications and could damage the UK's competitiveness as a destination for companies".

Fidelity will also tell ministers that the prospect of an upper limit for directors' total pay would be counter-productive because that figure could "become an informal pay target and give rise to an increase in the quantum of awards".

Significantly, Fidelity will oppose another idea which has gained currency among many of its peers - the publication of figures disclosing the ratio of a chief executive's pay to that of a company's 'average' employee.

Other fund managers, and the Investment Association - the industry's trade body - have supported the idea, but Fidelity will tell the Government it is "unconvinced that the disclosure of pay ratios in themselves will tell us much about a company's approach to pay".

A string of pay rows at companies including BP and Weir Group (Other OTC: WEIGY - news) have turned the spotlight back onto the issue, with further disputes already in evidence this year at Imperial Brands (LSE: IMB.L - news) and Thomas Cook (Frankfurt: A0MR3W - news) .