Shareholders fail to curb excessive executive pay

Measures to give shareholders the powers to tackle excessive executive pay have flopped, as in the five years since the ‘say on pay’ reforms were introduced, every single FTSE 100 company pay policy put to AGMs has been passed, according to the High Pay Centre (HPC)

The report examines the voting patterns of shareholders in FTSE 100 companies at AGMs between 2014 and 2018, ahead of the 2019 AGM season, on the question of challenging company executive remuneration policies.

In votes on remuneration reports, the mean level of shareholder dissent over the period was just 9.3%, reaching no higher than 10.6% in a single year (2016).

Only 12.4% of votes attracted ‘significant’ dissent (64 votes out of 514), and just six votes on remuneration reports were defeated over the period. These were Burberry (2014), Intertek (2015), BP (2016), Smith & Nephew (2016), Pearson (2017) and Royal Mail (2018).

Between 2014 and 2018, the HPC says 14 companies experienced significant dissent more than once over the period, suggesting that shareholder pressure does not prompt companies to change their approach to top pay.

These were BP, Burberry, Carnival, Experian, GlaxoSmithKline, Old Mutual, Pearson, Reckitt Benckiser, Sky, WM Morrison, Ashtead (three times), Astra Zeneca (three times) and WPP (five times).

HPC says its findings come despite median levels of CEO pay reaching £3.9m in 2017 (the most recent year for which full figures are available) an increase of 11%. This is approximately 137 times the annual salary of the typical UK worker.

The report states: ‘The UK’s system of shareholder-policed corporate governance places responsibility for tackling excessive executive pay squarely with shareholders, through their private engagements with investee companies and their votes at AGMs.

‘Our analysis shows conclusively that, although executive pay levels have remained at provocatively high levels, shareholder pressure has been virtually negligible with most pay packages and the policies that result in them waved through without serious opposition. In this respect, shareholder say on pay has failed.’

The think tank suggests a number of reasons for this.  they include conflicts of interest or sub-conscious biases in favour of highly-paid executives, on the basis that investment managers themselves tend to benefit from a culture of very high pay; dis-engagement and fragmentation; and risk aversion, meaning shareholders are more concerned about the potential impact of the sudden departure of a CEO whose salary package is challenged than high pay rates in themselves.

High Pay Centre report, Myth of shareholder stewardship

By Pat Sweet

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