Norges Bank, Norway’s sovereign wealth fund, confirmed last week that it would target high executive pay at companies where it invests. The decision could have far-reaching consequences in Ireland, where the fund has invested almost $1.4bn (€1.2bn) in 18 Iseq companies.
Its largest Irish holding is in Smurfit Kappa, where the fund is the biggest shareholder, with an 8.5% stake. Smurfit has been dogged by questions about generous pay awards since the days when Michael Smurfit ran the packaging company.
His son Tony, appointed chief executive in September, was paid €3.3m in 2015, with more than half coming from shares awarded under a long-term incentive plan.
“Smurfit Kappa says it follows best practice [in rewarding executives] but who says that best practice is also good practice?” said Sarah Wilson of proxy voting agency Manifest. “We’ve consistently raised problems with the Irish quoted sector. It’s not immune to poor corporate governance and high pay.”
Institutional Shareholder Services (ISS), another proxy voting agency, queried how Smurfit discloses bonus payments and the level of severance payments to former executives.
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Norway’s wealth fund has previously focused on whether executive pay aligned the interests of executives with those of shareholders.
The emphasis will now shift to whether the levels of pay are appropriate.
On this measure, the spotlight could fall on Stan McCarthy of Kerry Group as the best-paid chief executive among the fund’s Iseq investments. His package, paid in America, amounted to $4.6m in 2015, including shares worth $2.1m.
Among other Norges Bank investments, Andy McCue, chief executive at Paddy Power until its merger with rival bookie Betfair earlier this year, earned €3.7m last year, including shares worth €2.3m.
Siobhán Talbot at Glanbia pocketed €3.5m, including a share award worth €1.6m.
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CRH chief executive Albert Manifold is the best-paid boss on the Iseq. An incentive plan that could hike his bonus to over €8m a year was opposed by 40% of shareholders at the annual meeting last month.
ISS urged a rejection of the bonus on the basis that the performance targets were not challenging enough. Norges sold out of CRH last year.
A third of Kingspan shareholders refused to approve a share-based bonus plan at the building materials group’s annual meeting last week. The terms of the bonus plan rather than the total potential payout were tweaked mid-year, irking investors. Norges holds 2% of the company.
A key consideration, according to Wilson, is how chief executive pay compares with that of other members of the management. “A good chief executive can make a big difference [to the success of a business] but, in very large organisations, it’s hard to see how one individual can drive 20,000 people,” she said.
America’s winner-takes-all pay culture poses a particular risk for Ireland, Wilson believes, especially as US companies relocate here to take advantage of the low rate of corporation tax through so-called inversions.
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“It can be dangerous if [inversions] are treated as Irish, because US firms bring a ratcheting effect [on corporate pay],” said Wilson.