Hermes governance activists pocket 8m bonus payment

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Three of the UK's leading corporate governance activists and critics of excessive boardroom pay shared in a pay-out of nearly 8m (€13m) last year.

Peter Butler, David Pitt-Watson, and Stephen Brown, directors of Hermes Focus Asset Management, took home more than 5m between them last year in salary, bonus and long-term incentive plan payments.

In addition, the three shared nearly 2.8m from their carried interests in the three main Focus Fund partnerships. On average the three men earned 2.6m, putting them well into the top tier of highly-paid fund managers.

Alastair Ross Goobey, chief executive of parent company Hermes Pensions Management, which manages about 47bn of assets including the BT pension fund, defended the payments on the grounds that the Focus Funds have vastly outperformed their benchmarks.

'The performance of the funds has been extremely good and we are delighted they were able to make such substantial amounts of money,' he said.

Ross Goobey himself receives nothing like as much. Last year he was paid 464,000, despite his role in setting up the activist Focus Funds. 'I didn't want to compromise my position by stating I wanted a bit of the action when I discussed the idea of setting up these funds with my trustees,' he said.

However, Ross Goobey admitted that he too was likely to start benefiting from the Focus Funds performance. Although he is to step down from Hermes Pensions Management at the end of the year, he is set to become non-executive chairman of the Focus Funds. At that time he is also likely to receive a carried interest in the funds. He stresses that this will not increase overall charges as the three executives are to cut him in on their share.

Information on the pay packets of the three executives is lodged at Companies House. 'We go in for more disclosure than most to stop people accusing us of being hypocritical,' Ross Goobey said.

Hermes earned more than 15m in performance fees last year from running the three Focus Funds and related investments totalling 700m.

According to Ross Goobey, Hermes charges a hedge fund-style 20% of the amount by which the funds outperform their benchmark, the FT All-Share index. Butler, Pitt-Watson and Brown are highly incentivised, receiving a 30% cut of the amounts flowing to Hermes.

Companies House. 'We go in for more disclosure than most to stop people accusing us of being hypocritical,' Ross Goobey said.

Hermes earned more than 15m in performance fees last year from running the three Focus Funds and related investments totalling 700m.

According to Ross Goobey, Hermes charges a hedge fund-style 20% of the amount by which the funds outperform their benchmark, the FT All-Share index. Butler, Pitt-Watson and Brown are highly incentivised, receiving a 30% cut of the amounts flowing to Hermes.

Payments to the three Focus executives were, Ross Goobey said, highly geared to performance as their basic salaries were small, at least by City of London standards. Last year the three earned between 80,000 and 108,000 in basic salary.

Hermes has enjoyed huge success for the activist Focus Funds by buying stakes in poorly performing companies such as Trinity Mirror and Rank and encouraging corporate reform. The most recent company likely to come under pressure for its corporate governance practices is the Cayzer family's Caledonia Investments, where Hermes bought a near 8% stake last week.

Ross Goobey said he saw no conflict between the payments and the Focus Funds' role in tackling boardroom greed at companies such as Vodafone and Marconi.

'Options are fundamentally flawed but we have never said we don't like paying people for performance,' Ross Goobey said. 'And the Focus Funds have outperformed the FT All-Share every year. These payments are well earned.'

Last year the Focus Funds, whose investors include the BT pension fund, local authority and union pensions funds, and Calpers, the activist US pension giant, beat the FT All-Share by 15%. The index itself shed 8%, demonstrating that the Hermes executives are well rewarded for relative outperformance.

In absolute terms their rewards seem more remarkable. According to company documents, the main Hermes UK Focus Fund last year increased in value by about 34m, including investment income and realised and unrealised investment gains. Nearly 9m of this was paid to Hermes Focus and to the special partnership where the three executives hold a 30% interest. These payments helped to generate the returns to Butler, Pitt-Watson and Brown.

Payments to the three Focus executives were, said Ross Goobey, highly geared to performance as their basic salaries were small, at least by City of London standards. Last year the three earned between 80,000 and 108,000 in basic salary.

Hermes has enjoyed huge success for the activist Focus Funds by buying stakes in poorly performing companies such as Trinity Mirror and Rank and encouraging corporate reform. The most recent company likely to come under pressure for its corporate governance practices is the Cayzer family's Caledonia Investments, where Hermes bought a near 8% stake last week.

Ross Goobey said he saw no conflict between the payments and the Focus Funds' high profile role in tackling boardroom greed at companies like Vodafone and Marconi.

'We think options are fundamentally flawed but we have never said we don't like paying people for performance,' said Ross Goobey. 'And the Focus Funds have outperformed the FT All-Share every year. These payments are well earned.'

Last year the Focus Funds, whose investors include the BT pension fund, various local authority and union pensions funds, and Calpers, the activist US pension giant, beat the FT All-Share by 15%. The index itself shed 8%, demonstrating that the Hermes executives are well rewarded for relative outperformance.

In absolute terms their rewards seem more remarkable. According to company documents, the main Hermes UK Focus Fund last year increased in value by around 34m, including investment income and realised and unrealised investment gains. Nearly 9m of this was paid to Hermes Focus and to the special partnership where the three executives hold a 30% interest. These payments in turn helped to generate the returns to Butler, Pitt-Watson and Brown.

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