Icelandic Owner-Operator Index

In March 2018 the total number of board members at companies listed on the OMX Iceland counted 80 people in total. Only 16 of those 80 board members owned more than 1% of the stock of the company on which board they sit. 45 of these board members (56% of the total) did not own a single share in the company on which board they sat.

The Pension Fund Effect

One of the main reasons for the rise of the independent board members on the boards of publicly listed companies in Iceland is due to the ever-growing presence of Pension Funds. The Icelandic pension system consists of three pillars: a tax-financed public pension, a compulsory second pillar and voluntary private pensions.

The total assets under management of the pension system have grown from less than 60% of GDP 1997 to more than 140% of GDP in 2016. The size of the pension system is expected to keep growing in relation to GDP until reaching its peak at around 2027. According to these forecasts, at its peak, the size relative to GDP could reach up to 300% of GDP.

The Size of the Icelandic Pension System relative to GDP


Iceland has the third highest contribution in the world, with 6.1% of GDP being contributed to the pension system in 2014, surpassed only by Australia (7.5%) and Switzerland (8.1%). In 2016, contributions net of pension payments amounted to 60 billion ISK (USD 530 million on 2016 exchange rates). As a reference, the total bond market in Iceland is about 2,400 billion ISK.

Much of the direct ownership of individuals in publicly listed companies was wiped out in the financial crisis of 2009. Coupled with the high contribution rate to pension funds (15.5% of gross wages), this has lead to the pension system holding about 40% of all equity in publicly listed companies in Iceland.

But what kind of effects does this have? As the pension funds continue to accumulate assets, their main headache will be to find places to direct these funds. Will this affect the capital allocation decisions at the individual company level where they are invested?

The Owner-Operator Theory

In academic economics, the principal-agent problem and the concept of moral hazard are well covered. The interests – and subsequently the decision making – of a management that has no direct ownership will, in theory, differ from a management that has a significant portion of their net worth invested in the managed entity. The incentives, or more importantly, the disincentives for the two types of operators will be markedly different, as the owner-operator will, in fact, have more Skin in the Game.