Pay consultants blamed for City woes

City investors have blamed consultants for allowing finance sector pay to spiral out of control.

Two top fund managers have spoken out against the pay consultants who advise large corporations on staff remuneration.

Mark Burgess, head of active equities at Legal & General Investment Management (LGIM), said: “The compensation arms race that we’ve had in remuneration, driven by pay consultants, is neither viable, tenable, appropriate nor desirable.”

And Robert Talbut, chief investment officer at Royal London Asset Management, warned companies of the need to control pay. He said: “The idea that the incentive needs to be huge to elicit the right kind of behaviour is wrong. Institutional investors have got to get more used to saying ‘no’.”

City investors have already vetoed remuneration reports by consumer lender Provident Financial and oil giant Royal Dutch Shell this year.

The investors’ warnings coincided with the news that hedge fund managers Man Group had paid its chief executive, Peter Clarke, £8.8m last year. Last month, the group reported a 40% fall in pre-tax profits to $1.2bn (£7.3bn) for the year to the end of March 2009.