City funds prepare assault on excessive executive pay In January Stephen Hester, the chief executive of the taxpayer-owned Royal Bank of Scotland, was forced to waive a £1 million bonus after a public furore. His predecessor Fred Goodwin, was stripped of his knighthood over his role in the bank's collapse in 2008. Last week Barclays announced it was amending the terms of its chief executive Bob Diamond's £17.7 million package because of the "strength of opinion expressed by some shareholders" and in the US shareholders in Citigroup rejected a bigger pay deal for executives. The letter is signed by leading figures from 15 major pension funds and asset management groups including Allianz Global Investors, which last year was ranked as the largest fund manager in Europe. Other signatories include two Swedish state pension funds with more than £40 billion in funds under management together, the City group F&C Asset Management, a clutch of ethical investment funds and the Local Authority Pension Fund Forum, whose members control More than £100 billion in funds, and the Church of Eangland Pensions Board. Together they hold shares in most major companies. They insist that business leaders deserve rewards for success but add: "We are concerned that rewards to executives have been rising disproportionately relative to rewads to shareholders and to companies" perceived benefit to society." The letter sets out simple principle for companies to follow in deciding executive pay including a call for greater transparency, the need to create "permanent value" and only rewarding success. "Annual bonuses and long-term incentives are not entitlements but recognition for achievement for shareholders," the letter adds. It calls for rewards to be appropriate to the company's goals and not "dominated by an over-reliance" on what rivals are offering, leading to "excessive remuneration escalation." One of the signatories, Richard Maitland, a partner in Sarasin & Partners, which manages almost £13 billion in funds, said that a "tipping point" had been reached with shareholders were beginning to exert influence behind the scenes to influence decisions on executive pay. "People are realizing that they are actually empowered, more and more people are realizing that we can do something about this," he said. He added that there is a growing suspicion that performance related element of executive are being taken for granted as part of an overall pay package rather than an additional performance related award. I think investors will be looking a bit harder at these things to ensure that overall pay is aligned with shareholder interests and that things called bonuses really are bonuses. Adam Frost, Head of Governance at the group, said: "While there is to some extent a global market for talent, companies need to be mindful of that but that can be taken to extremes. If levels of pay are solely set with respect to the median in some cases above the median - of their peers it inevitably leads to escalation.