Shareholders bite back on executive pay
Will Spring 2012 go down in history as a turning point on executive pay? Have shareholders signalled that an increasing gap between share performance and executive reward is no longer permissible?
Since my last posting on this subject things have moved on apace. Figures have emerged showing that average executive pay for CEOs in the UK increased last year (2011) by 11% whilst the value of FTSE 100 shares declined by an average of 6%.
Such decoupling is a major theme in sustainability, as is equity. However, what decoupling tends to mean is growing the gap between economic growth and environmental and social impact, not growing the gap between executive reward and executive performance.
Shareholder Spring – a turning point for shareholder activism?
Shareholders have long had a key role to play in providing clear feedback to company management about the acceptability of executive reward. Until recently, there has tended to be more rumbling and grumbling by shareholder activitists than actual action. However, in a set of recent votes being increasingly referred to as “Shareholder Spring”, shareholders have voted in significant numbers against the proposed remuneration of a number of FTSE 100 leadership teams.
Votes at the AGMs of Trinity Mirror, Aviva, AstraZeneca and Barclays have produced significant proportions of shareholders registering their displeasure at the proposed remuneration of leadership. Significantly, for Aviva, AstraZeneca and Trinity Mirror, these votes have given rise to the resignation of their Chief Executives. Andrew Moss of Aviva was due to receive a 4.8% increase to his base salary of £960,000 despite Aviva shares having lost a quarter of their value over the previous year. However, whilst Moss’ pay and benefits package came to a healthy overall total of £2.69m in 2011, it was still a mere bagatelle when related to the remuneration received by other executives. It is also worth emphasising that, prior to his resignation, Mr Moss had agreed to waive any pay rise.
Inequality is an issue that exists at many levels in society and it is perhaps unfair to personalise such issues in such a public way. After all, we all seek to be rewarded as best we can in our working lives. However, the issue in such circumstances is not the fact that people seek the best pay they can get, but that levels of pay can often seem to be so disengaged from issues of performance and success.
For each of the departed Chief Executives noted above, their change in life circumstances will be cushioned by pay offs and the likelihood that their skills will be in demand in other roles. Andrew Moss, for example, is resigning with a combined package of around £1.7 million – enough to buy less than half his weight in gold should he be so inclined (here is how to work out how much gold a CEO’s pay packet buys).
A long term effect?
It remains to be seen whether this Spring’s votes are a turning point or a one off protest. However, it is possible that remuneration committees might now think twice before proposing rewards which ignore share price performance.