Executive Pensions: transparency not enough

The National Association of Pension Funds (NAPF) of the UK has written to FTSE 350 companies asking for more transparency over pensions for top executives. Unfortunately the letter does not call for directors' pensions to be cut but argues more clarity is needed so that shareholders can judge awards properly. Pro-Gov instead has long argued that all perks for top management - including pension schemes - should be made available to all employees on an equal footing - with contributions on a strict percentage basis related to basic salary. (25/06/2010)

CVC to give less information

At a time when regulators and the public call for 'private' equity firms to become more transparent is is curious that CVC has taken steps to reduce transparency. The firm has set up a new holding company in Luxembourg that will allow it to file consolidated accounts. This will exempt it from corporate income tax, business tax and net wealth tax. (25/06/2010)

Crowd calling for head of Prudential Chairman

We thought from the outset that the Prudential's attempt to bid for AIG's Asian business was a bid too far. Now some major institutional shareholders are said to try to effect changes in the Pru's executive suite.
But under a regime of proper corporate governance it would never have been possible for the management of a company to stray so far from the wishes of its shareholders. Permission to attempt a significant acquisition (or disposal) always be required beforehand. As a consequence the expensive replacement of senior management would also be unnecessary.

Realistic Taxes on Private Equity Managers

The determined lobbying by the managers of Private Equity against increased taxes on 'carried interest' makes for depressing reading. In a time of general belt-tightening that will hit those on low income hardest the industry should do the honorable thing and admit that the light-touch taxation of the past years was an oversight by politicians and the public. It can be explained by the fact that 20 years ago the industries were tender plants that were hardly visible on the investment scene. Only the past 15-10 years have seen an explosive growth that made it hard to explain why people whose earnings in a good year can be larger than the GDP of many small nations should little tax - or even no tax at all in the case of 'non-domiciled' in the UK.
Carried Interest should never have been treated as capital gain, the only exception could be the returns on the actual cash that has been invested by the managers of the Private Equity Funds. Even there they may benefit from loopholes. They may allot themselves a higher share of the equity interest than is reflected by the amount of cash they put in. The same loophole may benefit the management of the portfolio companies, their equity interest usually differs widely from their actual cash investment. Maybe this tax treatment explains some - or even most - of the ability of the private equity industry to convince managers in public companies to join them (or facilitate their purchase of companies or subsidiaries at advantageous terms). We always had our reservations about the industry's claim of superior management performance. It would be much cheaper for the ultimate owner of industry - the public investors - to simply change management rather than sell out only to later buy the same businesses back at a much higher price.