Norway’s Sovereign Wealth Fund Issues Stance on Executive Pay

The world’s largest sovereign wealth fund is taking a principled stance on corporate CEO pay, arguing the current model adopted by most companies is flawed. Norges Bank Investment Management (NBIM), the manager of Norway’s Government Pension Fund Global (GPFG) crafted a policy paper on CEO remuneration.

Yngve Slyngstad

Yngve Slyngstad

Like the corporate activist pension California Public Employees’ Retirement System (CalPERS), NBIM has voiced its concerns on a wide variety of issues such as environmental matters across corporate boards globally. NBIM is also a shareholder in most major companies. For example, at the end of 2016, Norway’s GPFG owned 5.2% of equity in BlackRock Inc. At the end of 2016, the Norwegian sovereign investor was invested in 8,895 companies, having an ownership stake of more than 2% in 1,158 companies, according to its annual report.

War Against Long-Term Incentive Plans

With regard to listed companies, CEO remuneration is a touchy topic. NBIM wants to realign the interests of the CEO and its shareholders, by altering the current pay model for a more simple and transparent compensation scheme. The wealth fund argues that a good number of long-term incentive schemes are ineffective, flawed and opaque. In addition, in a shift in thinking, NBIM desires listed companies to force their CEOs to own a substantial ownership stake in the company. Ideally, the wealth fund wants the CEO to own stock in the company for 10 years, or 5 years at a minimum. NBIM is generally more concerned about pay structure versus pay levels. The wealth fund hopes that companies enact and reveal pay ceilings for the following year.

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