Generally, the wage level for top executives in Denmark is at an acceptable level, but it goes over the top for some who draw a bit too much inspiration from the US, says Christian Hyldahl, the CEO of Denmark's largest, and one of Europe's biggest, pension funds, ATP.

In recent months, there has been significant focus on ATP's policies on active ownership, which has prompted Hyldahl to clarify the pension fund's thinking, in an interview with FW Asset Management.

"Our general perspective is that it's important for us that the companies we invest in have competent management. We have an approach to active ownership, where we have a continuous dialogue with management in the Danish companies we have invested in, where we're very close, and major shareholders" Hyldahl explains.

He would generally like for the companies to devise pay packages so that fixed salary accounts for up to one third, and the variable portion is dependent on long-term incentives and paid out in the form of shares. Furthermore, ATP believes, that company management needs to have a downside risk, as ATP has as an investor.

"And then we also work to create more transparency. It can sometimes be difficult for us to figure out the salary packages. We may also sometimes fear that the board of directors has difficulty figuring out the packages that are implemented," says Hyldahl.

He is not willing to discuss specific examples of overly complex salary packages.

American benchmark does not apply in Denmark

Regarding salaries and bonuses in Danish companies, Hyldahl believes that they are currently at an overall reasonable level.

"We have observed a development in Denmark over the past few years where these levels have risen a fair amount. Roughly speaking, the packages have doubled over the course of the past 5-10 years. We believe that it has reached a reasonable and adequate level. We don't see anything out of control about the situation. But of course, it varies from company to company, and we have voted against some things and commented on others," he says.

In companies where ATP has sounded the alarm, it has typically been due to the company drawing inspiration from salary levels across the Atlantic.

"In some cases, without going into specifics, compensation benchmarking is based on a very global scale, and maybe there is a predominance of American companies in these benchmarks. As we see it, this benchmark is not applicable in Danish companies. There are very few exceptions, if any," he says.

"We simply do not believe that is in our interest as shareholders to import a salary level that is unfit for corporate cultures and the way that Danish and Nordic companies have been and are currently successfully operating."

"Just as company managers don't generally have a strategy to pay top salaries to employees, it is important to us that company managements show leadership, act a role model, and show that it is not only about landing a salary that matches that of an American CEO, but emphasizes the importance of a reasonable salary and then having a variety of other motivating factors."

Will not withdraw investments

If a company has an acceptable salary, but then puts a salary package, that seems too favorable to you, to the vote at an AGM, what will you do?

"We typically have a close, ongoing dialog with the companies we invest in. This includes a dialog with the board of directors regarding compensation packages. They will usually listen to us. They might not instantly be willing to align completely with our view. But when we see development in the right direction, we take it as a positive dialog," says Hyldahl, before quickly adding:

"But if a company stands its ground and has a different view on things, it might result in us voting against the proposal at the AGM."

However, he is not prepared to withdraw ATP's investment in a company, if it refuses to comply.

"Ultimately, you always have that option as investor. But I believe that the most effective way to influence Danish companies is to hold in position in the company, and be at their heels. As long as we believe that the investment is good and the company and shares have a positive potential, we will hold on to our investment, and we will be very clear about our opinion of the compensation packages," says Hyldahl.

Sometimes critique isn't credible

ATP attracted criticism for remaining absent and not addressing the assembly at Dong's and Nets' general assemblies. Both companies have been criticized for over-generous compensation packages to management.

However, ATP said, that the reason for the silence was, that the pension fund had invested in the companies in question before their respective IPOs.

"We concluded that our vote on the matter would not be credible. No matter what we had voted, it could have been linked to our additional position as seller of shares in the IPOs. For this reason, we opted out of the first general assembly for the companies as listed entities. But we will, of course, be present next year if we are still stockholders," says Hyldahl.

What is your position on compensation levels for supervisory in Danish companies?

"Broadly speaking, it looks fine to us. We have noticed that levels have increased, but I think it seems reasonable. I think it's important that non-executive directors get salaries that correspond to the work load and responsibility that rests with being a director, an in particular a chairman. We also would like directors to limit the number of boards they sit on, and prefer that they hold fewer board positions, but receive a higher compensation.

More clarity in global investments

You have previously said that ATP wants to be a role model for active ownership. How will that manifest itself?

"As I see it, ATP is already a role model. ATP is arguably the investor that gets up and expresses its opinion at all AGMs in Denmark. Furthermore, we have full transparency through our website. This is not to say that we can't improve. We work continuously on becoming more transparent, learning from our other investments around the world."

Where do you think you could improve?

"We already have a good amount of transparency with Danish companies. We are in the process of gearing up clarity-wise on our international equity investments, and this might in particular be an area where we could become more transparent and clear in our communication of our actions."

When are you publishing an official ESG or CSR policy for active ownership and salary levels?

"We have a policy for active ownership. It can be found on our website. But we will never have a set of guidelines stating that you can receive so-and-so many millions if you are the CEO of a company of a certain size. It's case by case. There's complexity, there are sectors, there are many possible influencing factors. We don't believe that it is advisable to commit to such a policy," says Hyldahl.

English Edit: Marie Honoré