The Business, Innovation and Skills select committee is calling on the Government to pick up its “regulatory stick” to enforce a major overhaul of fund manager pay structures.
In its report on economist John Kay’s review into short-termism in UK equity markets, published today, the BIS select committee says fund managers are not benefiting the long-term health of the companies they invest in.
In his 2011 report, Kay called for regulation to ensure asset manger pay is directly aligned to the companies they invest in but the Government only included it in its Kay Good Practice Statement, which it encouraged the sector to adopt.
The select committee says the Government has “shied away” from the issue and wants it to end short-term incentives for fund managers and gear pay towards the long term.
It says fund manager incentives are one of the most important factors in the investment chain and the Government needs to take a “harder line” on pay for the sector.
The report wants asset manager pay to be reviewed over longer horizons than the quarterly cycle and for the Government to develop long-term measures of success for the industry with sanctions for failure.
The MPs argue the Government should then publish a list of firms who have failed to fully introduce the reforms.
It states: “There is a growing concern that asset managers do not behave in a way that benefits the long-term health of the companies in which they invest. At the heart of the issue is the incentives connected to the different links in the investment chain; from the owner, to the fund manager, through to the executives of the companies themselves.”
It also backed calls to end the requirement for listed firms to report results on a quarterly basis in a bid to encourage long-term thinking, as supported by Labour leader Ed Miliband.