Government-backed pension scheme the National Employment Savings Trust has set out plans to challenge the companies it invests in over executive pay, the appointment of auditors and the diversity of board membership.
Nest began accepting contributions from pension investors in July last year. It is eventually expected to become one of the largest institutional asset owners in the UK.
The pension scheme has today published a document detailing its approach to corporate governance and its voting policy.
Nest says the link between executive pay and performance remains unclear and argues the processes which have driven up salaries are “systemic”.
It says: “We believe that many of the processes driving the level of executive pay upward are systemic.
“There is the interconnectedness of directors and companies, the use of board consultants with similar practices and similar advice, checklists of multiple parts to pay, and the use of relative reference points such as pay elsewhere.
“These have created herd-like behaviour across companies. The causes that are now sounding alarm bells among directors and shareholders need to be urgently addressed, but voting alone is unlikely to bring about the change in culture many see as vital.”
In addition, Nest says it will vote against the re-election of the chair of a firm’s nomination committee if the company fails to disclose a target for the number of women it aims to have on the board and there is no indication of progress in electing women onto the board.
The scheme also wants to see greater competition in the market for auditors.
In February, the Competition Commission warned the audit market is “not serving shareholders” and remains dominated by a small number of large businesses.
Nest trustee member Sharon Darcy says: “We believe automatic enrolment heralds the start of a quiet shareholder revolution. Through their workplace pensions millions of UK workers will gain ownership stakes in companies across the UK and around the world.
“We believe many of our members will have a keen interest in ensuring companies are profitable and sustainable for the long-term and by doing so provide increased security and prosperity for our members in retirement.”
Nest chief investment officer Mark Fawcett says: “The publication of our voting policy lets companies, fund managers and our members see what’s important to Nest and how we want to work with them for the future – which is collaboratively, constructively and to achieve great outcomes for our members. This voting policy is an important step to achieving our ambitions.”