Shareholder anger over salaries and bonuses has forced the resignation of top company bosses. But do not mistake this for an anti-capitalist revolution, writes Business Correspondent Sarah Smith.
Three very well paid bosses have been toppled in the last few days, and there have several shareholder rebellions against high pay in the last two weeks. But we shouldn’t mistake this for a war on greed. It is not ridiculously large pay deals that shareholders are voting against: it’s the disconnect between the rises in top execs pay and the performance of their companies.
Shareholders will tolerate any kind of eye popping pay deal if the CEO is making them money too. It is when the share price is going down but the executive pay is going up that they get angry. That’s why we didn’t see these kinds of revolts before when pay was shooting up but profits were rising at the same time.
“Big institutional shareholders have always been concerned about these things – British Gas had a shareholder revolt in 1994 – but what we’re seeing now is that shareholders have been emboldened by legislation,” writes Sarah Wilson, MD of Manifest, the proxy voting agency.
“Aviva is a special case: the vote on pay has been used as a proxy for something else. Was it a vote on pay or performance? But the Occupy movement has made people stop and think about how companies and corporations are run, and how they affect them.”
The string of votes against remuneration deals at not just Aviva but also at Xstrata and Barclays come at an interesting time. Business Secretary Vince Cable is currently considering whether to make remuneration votes binding. At the moment it’s only advisory and companies can completely ignore it if they wish. Mr Cable is even thinking about insisting that 75 per cent of shareholders vote for a pay deal before it’s allowed to go through – which would mean Bob Diamond’s deal at Barclays, would have been defeated by the vote of 27 per cent against.
But will making the vote binding encourage and empower more shareholders to take more action? Possibly not. A lot of the people voting against remuneration reports aren’t really voting against pay – they are using it as away of registering their discontent about the way the company is being run.
What’s happened to Andrew Moss today shows that it’s a good way of getting the message through. If the vote becomes binding shareholders may feel less tempted to use it as a protest vote.
Large institutional investors – pension funds and insurance companies – usually make their views known long before the AGM and aim to get company policy quietly changed behind the scenes. That’s what happened when Aviva, one of the biggest shareholders in Trinity Media made clear how unhappy they were with Chief Exec Sly Bailey’s performance and her pay deal, effectively forcing her out without the need for an ugly public vote.
Shame they weren’t so sensitive to their own shareholder’s concerns about the pay and performance of their own group chief executive, Andrew Moss.
The companies hit by the ‘shareholder spring’:
Barclays
Nearly a third of shareholders failed to back the bank’s proposed pay awards,which included a whopping £17.7m in total for chief executive Bob Diamond, despite a 25 per cent slide in share prices over the last year.
Aviva
Chief executive Andrew Moss offered to waive a near 5 per cent pay rise which would have taken his annual salary over the £1m mark. That was not enough for shareholders, though, who voted against the remuneration report after a 30 per cent drop in the share price in the last year.
Xstrata
Around 40 per cent of shareholders voted against the company’s annual pay report, which recommended its chief executive cash in shares and options worth £6m. The mining company saw shares decline 23 per cent in the last year.
AstraZeneca
Another chief executive bites the dust – David Brennan will step down in June after being criticised for falling profits. The pharmaceutical giant’s share price has fallen 10 per cent in the last 12 months.
Trinity Mirror
Trinity Mirror’s share price is 90 per cent below what it was ten years ago when Sly Bailey took over as chief executive. But that hasn’t stopped Ms Bailey from taking home a £1.7m pay packet. Shareholders rejected Trinity’s revised outline for Ms Bailey’s pay and she stepped down last week before the company’s AGM in anticipation of a revolt.