Investors warns companies on measures for executive pay

Standard Life, which has about £70bn of assets under management and owns about 2 per cent of the UK stock market, said it would oppose pay packages solely based on share price-based performance targets such as total shareholder return - the share price movement of a company plus dividend payments.

The fund manager, one of the most activist in the UK market, said in its new corporate governance guidelines that pay schemes should be underpinned by challenging performance targets of underlying financial performance such as earnings "We expect executive bonus and share incentive schemes to use challenging performance conditions that are neither too easy nor too tough to achieve," said Guy Jubb, head of corporate governance. "We continue to have reservations about the use of total shareholder return and other share price performance schemes.

Some shareholders believe share price-based targets are influenced too much by factors outside management control such as general stock market sentiment.

Fund managers are coming under increasing scrutiny over their corporate governance policies and operations as they step up activism against underperforming companies.

Other shareholders are also revamping their policies after the introduction of a new Combined Code
of Corporate Governance for companies on November 1. This code was revised after the government-commissioned review into non-executive directors led by Derek Higgs, a former investment banker.

Fidelity Investments, which led a shareholder revolt against the appointment of Michael Green as chairman-designate at the soon-to-be created ITV plc, also published its "principles of ownership" last month.

Among other recommendations, Standard Life also urged that boards should have at least three executive directors. "We believe this will help to ensure an appropriate blend of executive and non-executive representation which is consistent ; with improving both corporate performance and returns to shareholders," it said.