Norway’s sovereign wealth fund has rejected the idea that remuneration committees should oversee pay across all employees in a company rather than only the board.

Norges Bank Investment Management (NBIM) made the remarks to the Financial Reporting Council (FRC) in a letter responding to a consultation on a revision of the UK’s corporate governance code.

NBIM said that a belief in the “differing” roles of board and management meant that employee pay should remain an operational issue.

NBIM said: “…we note that some of the proposed changes may blur the division of responsibilities, in particular having the remuneration committee of the board oversee all pay structures throughout the company. We believe that operational tasks should remain the responsibility of the management rather than the board.”

NBIM is the investment management division of the Norwegian Central Bank, which invests the country’s oil wealth through the Government Pension Fund Global. It has £50.7bn in equity assets under management.

Broader remco responsibilities

The FRC’s revised code would entail broader responsibilities for the remuneration committee. Proposed new wording says: “The board should exercise independent judgement and discretion when approving remuneration outcomes, taking account of company and individual performance, and wider circumstances. No director should be involved in deciding his or her own remuneration outcome.”

NBIM also wants to see executives hold incentive equity for a minimum of five years and the end of long-term incentive plans (LTIPs).

NBIM backed the five-year minimum holding period for equity remuneration proposed in the code, and welcomed the idea that longer periods, even post-employment, may be appropriate.

But NBIM took aim at LTIPs, suggesting that longer term lock-ins meant remuneration committees could do away with “performance conditions for long-term shareholding”.

The letter said: “It is our view that long-term shareholding will better align CEO and shareholder interests than so-called long-term incentive plans with performance conditions.

“Substantial long-term equity exposure reinforces the intrinsic motivation of the CEO to succeed and contribute. It removes the distractions embedded in the design of many of the current incentive plans.”

NBIM offered caution on the definition of “independence” for directors. It said that provision in the code on independence should work as “flags rather than strict requirements”.