President, Investment, Fidelity International
Looking ahead to the next 12 months, I think the governance agenda will be increasingly important. In a bull market, when things are going well, it is relatively easy to identify a poorly performing company in a sector where everyone else is prospering: it is not hard to suggest that management may not be up to the task and that changes should be looked at. In a contracting economy, where all companies are suffering, it is less clear when bad management is to blame.
Inevitably, with share prices down and options out of the money, incentives have become a controversial area. We are certainly looking at all our approaches to remuneration. We are normally pretty strongly opposed to the re-pricing of options but I do think one has to guard against knee jerk reactions which may lead to a situation where the only way to get decent incentives is to change the management. There is no question that in many cases remuneration policy has been focused too much on the short-term and I think we’re likely to see both a longer performance vesting period (during which executives will have to wait for the award of shares) and a further mandatory period of time when managers will have to hold on to incentive stock. Personally I am not in favor of claw backs (the proposal that would see executives handing back their rewards retrospectively if they were perceived to have failed). Imposing too many conditions risks stifling innovation and personal motivation because people start seeing the rewards as academic and something they are never going to be able to get their hands on.
There is a minority view in the European Union – but a meaningful one – that everyone should go back to fixed salaries and variable pay should be minimal. I totally disagree with that as a shareholder because appropriate motivation is an important way of getting the outcomes we all want. I have no problem with a high variable remuneration structure provided that it is symmetrical – in that if success is well-rewarded, failure should not be. Companies are going to have to think carefully about how to communicate this issue, just as they are about everything else.
Anthony Bolton is President, Investment, at Fidelity International. His Fidelity Special Situations fund has been the top performer in its sector since its launch in 1979. He was manager of the fund for more than 27 years and now has a full-time role mentoring Fidelity’s younger fund managers and overseeing Fidelity’s investment process.