Annie Powell of Fair Pensions writes about the “Your say on high pay” campaign against excessive executive pay.
By Annie Powell of Fair Pensions
If you were CEO of a company that had, by your own admission, delivered “unacceptable” shareholder returns, would you expect to receive a remuneration package of £17.7m? Probably not, but that is exactly the position in which Bob Diamond finds himself.
Diamond’s pay package prompted a shareholder revolt at Barclays’ AGM on Friday with 26.9% of shareholders using their advisory vote to protest against the remuneration report.
As remuneration votes go, this is a significant amount of dissent.
The Barclays AGM results, however, demonstrate the shortcomings of the government’s proposals to introduce a binding simple majority vote as an antidote to excessive pay (as discussed by Duncan Exley on Left Foot Forward, this is in contrast to previous plans to require special majority approval).
If a majority of shareholders are unwilling to use a mere advisory vote against a package as egregious as Diamond’s, making the vote binding is unlikely to provide the entire solution to the executive pay problem.
The extent of this problem was highlighted during the recession when executive pay continued to soar while thousands lost their jobs and average wages stagnated. The effect of executive pay on increasing wage inequality in the UK is starkly demonstrated by Chart 1 which shows the percentage increase in CEO and average pay since 1998.
The chart also shows how executive pay has increased out of all proportion to shareholder returns. In 2008/9, for example, FTSE 100 CEOs saw their base pay increase by 10% while the companies they ran lost almost a third of their value.
These inordinate pay packages not only waste money that could otherwise be used to increase dividends, they also compromise the success of the company: if executives are so well rewarded for mediocrity and even failure, there is little financial incentive for them to succeed.
This is bad news for the many of us whose pension pots and savings depend on the performance of FTSE 100 companies.
And herein lies the rub: if it is in shareholders’ interest to vote down excessive pay packages, why aren’t they being voted down more frequently? Part of the answer is that the asset managers who vote on behalf of many pension funds and savers do not properly represent their clients’ interests.
Asset managers are highly conflicted on pay: they are themselves very highly paid, and they often work for the asset management arm of financial conglomerates whose investment banking divisions act for FTSE companies. Voting against high pay would effectively be voting against their companies’ own clients.
To make matters worse, pension funds have been poor in holding their asset managers to account. For this reason, Fair Pensions has launched the Your Say on High Pay campaign to give ordinary savers a voice on executive pay.
Our online action tool allows people to email their pension fund and ISA providers directly; this email requests that the fund or provider asks their asset managers to vote against remuneration reports that contain certain unacceptable components, such as a bonus that exceeds 200% of base salary.
While pension funds and ISA providers are not obliged to act on the instructions of their members or customers, it is hard for them to ignore a groundswell of opinion on investment issues such as this; after all, it’s not their money.