One of the City's biggest fund managers is calling on the leading banks in Britain to reform their pay practices amid concerns of a regulatory backlash against bankers' pay.
F&C Investments said it was contacting 50 banks to warn them of the risk to their reputation, not just from high pay of chief executives but across the organisation. It came as a study by the Share Centre found that 95% of institutional investors believed pay was too high across all leading companies, not just the banks.
Until now, F&C said it had "refrained from addressing the quantum of pay" and focusing on the structure of pay deals. While this was still important, F&C noted that bankers' pay had "escalated" relative to other sectors.
"As investors, we are concerned about how perceptions of bank pay can tarnish a bank's reputation as well as set the stage for a harmful regulatory backlash. We therefore believe that current high levels of pay in parts of the financial sector are not sustainable," F&C said.
"We hope that bank remuneration committees have seriously reflected upon this, and will be in a position at this year's annual meeting to justify to both financial and non-financial stakeholders about the quantum of pay to executive directors and to individuals below board level."
The fund management firm is also calling for bonus awards to be tied to a company's financial strength, and admits to being "increasingly sceptical that an undue focus" by management on return on equity is the best way to generate a return to returns for shareholders.
F&C's intervention is the latest from fund managers and follows a move by pension funds, led by Hermes Equity Ownership Services, to call for changes to the way top executives are paid, not just bankers.
Hermes wants the current practice – three-year bonuses linked to earnings per share – to be abandoned and replaced by a more simple method, where executives are awarded with shares that must be held for the long term.
F&C declined to disclose how it might vote in the forthcoming season of banking annual meetings in the UK, which will kick off at Barclays in a fortnight amid controversy over a £5.7m tax payment on behalf of Barclays' chief executive, Bob Diamond.
The study by the Share Centre found institutional investors felt pay was too high for executives, and 83% felt there should also be arrangements to "claw back" pay.
Gavin Oldham, the chief executive of the Share Centre, said: "There should be far more sensitivity shown in setting both salaries and bonuses, with the multiple between highest and lowest earner (full-time equivalent basis) being disclosed in companies' annual reports".
A member of the Bank of England's monetary policy committee, Adam Posen, also stepped into the debate about the role of banks in the UK. Speaking in a personal capacity, Posen warned about the UK's obsession with banks.