The myth of a shareholder spring

 
People at boardroom table Is the shareholder spring just a myth?

The disclosure that FTSE100 chief executives were last year awarded average total remuneration of £4.8m, a rise of 12%, will be seen by many as shocking.

It comes at a time when earnings for the vast majority of people are stagnating and represents a record of just over 200 times average total pay in the private sector of just under £24,000 (on latest figures from the Office for National Statistics).

Basic pay for the bosses of the UK's biggest companies rose 2.5%. It was the variable elements of pay - so-called long term incentive awards and deferred bonuses - that soared.

The authors of the report, the consultancies Manifest and MM&K, said the main problems with pay are in the largest companies, where directors' remuneration - while large in itself - is a small proportion of total costs.

The owners of companies have become increasingly concerned about what they see as excessive pay increases for directors, that are not justified by the performance of companies - and there has been a rise in the number of protest votes against remuneration practices at companies' annual meetings. Tomorrow WPP, the media giant, is expected to lose a vote on its pay policies.

Strikingly, though, a deeper analysis of this so-called "shareholder spring" of investor uprisings shows it may not really exist. There have been just four defeats so far of companies in votes on their so-called "remuneration reports", and only one of these companies has been in the FTSE100 list of biggest businesses. That does not represent an exponential increase in shareholder rebellions.

According to research also carried out by the corporate governance advisory group, Manifest, the average level of dissent registered in all explicit votes on remuneration was 11.7% - which was up from 9.6% in the previous year, but significantly below the dissent levels of 16% and 12.4% seen in 2002 and 2003 respectively.

In other words, the ambition of Vince Cable, the business secretary, to entrench a culture of greater engagement by investors in the management of business seems some way from being fulfilled.

It is understood, however, that Mr Cable is close to succumbing to pressure from the Association of British Insurers, among others, for new binding votes on companies' pay to take place only every three years, rather than annually. Mr Cable has been consulting on how the current annual votes on pay, which have only advisory status, could be replaced by votes with mandatory force.

Some will therefore accuse Mr Cable of taking the pressure off businesses on pay. But a colleague of his said Mr Cable thought three-year votes would "encourage more long-term thinking among companies, which is what we want".

That said, Mr Cable would want a provision whereby there would be an annual vote if there were "any substantive policy changes [on remuneration]".

The other striking element in today's report by Manifest and MM&K is a league table of the 10 highest paid FTSE100 executives on the basis of "total remuneration realisable" - which includes the value of previous years' long-term awards, such as share options, that have vested and can therefore be cashed in.

This shows Bob Diamond, the chief executive of Barclays, as the highest earner among the UK's corporate bosses, with total realisable pay of £20.97m. In second place was Sir Martin Sorrell of WPP - whose pay will be implicitly criticised tomorrow in a protest vote at WPP's annual meeting - with £11.6m.

In third place was AstraZeneca's David Brennan, with £11.3m, who recently retired early following criticism from shareholders of the company's performance.

Manifest and MM&K believe that Vince Cable's governance reforms may force all companies to disclose this single figure for realisable remuneration every year in their annual reports.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    0

    Comment number 199.

    All this whinging re #MartinSorrell's pay is completely ludicrous. Value him in increased shareholder value not teachers salaries. #WPP pays tax as does Sorrell who created a business that employs 150,000 people around the world. They all pay tax. If the shareholders over-rule him on salaries, maybe they would like to manage WPP's acquisition policies, recruitment processes, sustainability etc etc

  • rate this
    0

    Comment number 198.

    The FTSE 100 CEOs (with a few exceptions) have brought our world to breaking point; financially; environmentally and socially. Rather than paying taxes perhaps they should be personally fined each year unless they can demonstrate exactly how their business is sustainable in every sense of the word

  • rate this
    -3

    Comment number 197.

    Why complain. You voted Cameron & Clegg into their millionaire's row known as the government front bench. The recession was driven from America. However, all Dave 'You are all in this together' can do is blame Labour. Up here, we elected 1 single Tory.e. The Lib-Dem betrayal was unexpected and they will be extinct at the next election. You will vote for tax cuts for the rich and cuts for the poor.

  • rate this
    +2

    Comment number 196.

    It's so funny - the BBC and other media outlets made the Arab spring look 'larger' than it actually was at times by shooting tight shots on protesters as if there were hundreds of them when in fact there were just a handful. Seems remarkably similar.

  • rate this
    +2

    Comment number 195.

    In relative terms CEOs of modern corporations are paid more than ten times what their equivalents were paid 30-40 years ago yet, almost without fail, the corporations they run are much LESS profitable. The myth we are sold is that shares are held as investments by "normal" people. Most are held by other corporations and they all vote for each others pay rises. It is just a form of asset stripping

  • rate this
    0

    Comment number 194.

    Crazy - so he's "worth" 200 nurses, or teachers? Defenders will say "life's not fair", but if there was a tax of 95% on pay above £500k, it would be "that's not fair".

  • rate this
    -4

    Comment number 193.

    Remember this whole rotten system is underpinned when you fawn after the monarchy who demonstrate that it is ok for people to get £millions for doing very little and for the rest of us to be reminded to remember our place and keep working for them.
    The monarchy is the only encouragement the old boys network needs to keep ripping the rest of us off.

  • rate this
    +1

    Comment number 192.

    Would it be right to assume that 'salary' is what you get no matter how little work/effort you put into the job and 'bonus' is what you get when you actually do the job properly?????????

  • rate this
    +1

    Comment number 191.

    Greed and avarice are inherent in a capitalist economy. I find it strange that people will whinge at bosses getting excessive pay, but will happily go and wave a flag at a woman who receives over 9 million a year for shaking a few hands!

  • rate this
    +2

    Comment number 190.

    It might be a myth to you Robert, but our CEO is now GONE because we shareholders voted for it. Easy as A to Z....

  • rate this
    +2

    Comment number 189.

    As others have said:

    Exec rewards need to be linked to them having some "skin in the game" (dreadful expression).

    Real share owners should vote rather than insurers, pension funds etc doing so on their behalf. Perhaps difficult maybe but surely not unachievable.

    Also
    Education systems must pay some attention to teaching the concept of "enough to be content" rather than "more is always better".

  • Comment number 188.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +3

    Comment number 187.

    185.feedbackloop

    Why such obsession with bonuses? Man has always found power intoxicating in itself - just look at the Jeremy Hunt pathetic saga.

    If you really want a robust bonus structure - base it on the trend EBT. Exceed it - get a bonus (you are clearly doing something right). Don't exceed it (regardless of economy etc.) - forget it.

  • rate this
    +5

    Comment number 186.

    It wouldn't hurt so much if the people that rise to the top were particularly able. I've met several & very, very few are exceptionally good - and those usually are pushed aside. A lot of people could do as well as many of the top management of large companies.

    In addition, to why do we pay them so much: why do we promote the mediocre or incompetent?

  • rate this
    0

    Comment number 185.

    184 TI dont know enough about BD to know whether he has taken risk at some stage - but I dont believe that FTSE 100 CEO should qualify for such major rewards without an element of personal financial risk. So we are agree that principle. However, in investments of the size of FTSE 100 agency is a problem not just on rewards. So who do we hire to look after the baby and how do we incentivise them.

  • rate this
    +3

    Comment number 184.

    179.feedbackloop

    That’s right – I’ve been there too. During dotcom and telco boom. And have seen guys at all levels working their socks off, at a meagre compensation (and that’s the crux!) but with a sizeable stake in the business. They knew if they didn’t pull it off – it was their livelihood at stake. And often it did not work out. Now, tell me – what does Bob Diamond risk?

  • rate this
    +5

    Comment number 183.

    Put these parasites in prison for crimes against common morality and decency.

  • rate this
    +1

    Comment number 182.

    feedback @177
    "angst"

    Rational fear, some anxiety, much anger, abound

    Not to be dismissed as if generalised from the trivial

    If 99% lived happily, at peace with each other, no problem with a few 'life-peer footballers', or even with a modest monarch with a modest number of palaces

    Not our situation, sadly sado-masochistic inequality

    Need courage & conscience, as equals
    Enjoying rational trust

  • rate this
    0

    Comment number 181.

    178. feedbackloop
    9 MINUTES AGO
    151 NN6 Whats your name for people that are obessessed about the rewards of the priviledged
    +++
    Everyone

  • rate this
    +3

    Comment number 180.

    149.feedbackloop

    Not sure you quite grasped what this angst is all about. I don’t think many people on here begrudge the riches to entrepreneurs– guys who risk it all and create jobs and wealth for this country. However, paying entrepreneurial rewards to mere employees, who haven’t done anything more special than the rest of us, no risk and actually destroy value – that’s the problem

 

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