Corporate pay practices, including pay levels, and the responsibility shareholders carry in this respect have attracted a lot of attention. PGGM has heard our clients’ and their beneficiaries’ questions as to what we are doing about remuneration issues in their portfolio companies. Their questions imply that we are complicit in the problem, and must be part of the solution.
The truth is, if we are to be honest with ourselves, that we have been part of the problem in that we have not clearly set out our expectations and acted against them. We can no longer let our Voting Guidelines and vote record do the talking on our behalf. Remuneration is important enough for long-term sustainable returns, and we believe that the risk of current day remuneration practices on society is serious enough, that we need to set out our own expectations on the subject. We should be willing to take some challenging steps in the process. We therefore developed the PGGM Remuneration Guidelines for Portfolio Companies as our clear guidance in regards to corporate remuneration practices and outcomes.
The process of developing these Guidelines took us over a year. In fact, at first we did not know where to begin. The academic research and volume of public material on the subject was overwhelming. We came to the conclusion that we have our own beliefs, and we set out with these beliefs to craft what remuneration could look like in an ideal world. This vision acted as our guiding light when we found ourselves straying from our original objectives.
We sought to create a practical and implementable solution for ourselves. At the end of the day, our objective is to earn a return for our clients so that they may provide retirement income to their beneficiaries. And where possible we look for investments that can also contribute to a more viable world for our beneficiaries to enjoy. It is not our role to be complicit in enriching employees and management at any cost, either financial or otherwise.
Therefore, a cornerstone of our Guidelines is that fixed salaries are a fair exchange for executing the job in a reasonable and responsible manner. Variable pay is only granted in circumstances in which employees and management meet or exceed PGGM’s financial return expectations and company operational decisions do not result in negative impacts on society and/or the environment.
Our Guidelines will be implemented in a phased approach over the coming years. We have already incorporated some changes into our Voting Guidelines, and will continue to do so. Our practice of engaging with companies will continue, but our engagements will be much more focussed than they have been in the past.
We will also be speaking more with our peers and colleagues about remuneration to continue to evolve our collective thinking on this important topic. We believe that PGGM has a role to play in helping to formulate the shareholder perspective on remuneration, and the PGGM Remuneration Guidelines for Portfolio Companies is our first step towards achieving this goal.
Read our PGGM Remuneration Guidelines for Portfolio Companies