Shareholders at British brand Burberry (LSE: BRBY) have revolted against the pay of the company’s CEO, Christopher Bailey, with 52.7% opposing the fashion house’s remuneration report.
The CEO, who is also creative director for the brand, became one of the highest-paid men in Britain when he took the job earlier this year, commanding a basic salary of £1.1 million, pension contributions of £330,000 and up to £6.6 million from various incentive schemes.
He was also given more than £1 million in free shares as a golden hello and his salary is topped up by a cash allowance of £440,000 a year. The total package is potentially worth tens of millions, including rewards based on performance. He’s not short of a bob or two, is what we’re saying.
But can anyone be worth such an impressive pay packet?
Value for shareholders?
Most shareholders want to be sure the company is delivering the best value possible. Most are unlikely to object to high salaries if they were sure it maximised their own returns. But how can any of us know if Bailey is worth this massive amount?
Clearly he is a popular choice for CEO, with his appointment being approved by 99% of the shareholders. And although more than half of investors were unhappy with the remuneration report, almost 84% did support the overall pay policy – meaning Bailey gets his millions.
In an attempt to pacify angry shareholders, the chairman Sir John Peace claimed Bailey had helped add £4.5 billion to the value of the brand and warned that head-hunters had already tried to lure him away. So clearly the board felt the pay was entirely justified to keep a vital talent on board.
Yet the Investment Management Association issued an ‘amber’ warning over the scale of pay at the company and Pirc, a corporate governance organisation, called it “excessive”.
So what IS normal pay for top bosses?
Most of us accept that the head of an international brand such as Burberry is going to command a higher-than-average salary. But what is normal among the rest of the FTSE 100?
A new report from think tank the High Pay Centre found that the average FTSE 100 chief executive earned £4.7 million last year, up from £4.1 million the year before. To put that into context, that is almost 180-times what the average worker earns (up from 60-times average pay in the 1990s).
Do shareholders often revolt like this?
Back in 2012, shareholders at a record number of top UK companies challenged boards over pay and strategy, in what came to be known as the ‘shareholder spring’.
For example, 54% of shareholders voted against Aviva’s (LSE: AV) (NYSE: AV.US) remuneration policy, with the figure rising to almost 60% if you factored in deliberate abstentions. A key reason for investor anger was the £2.2 million ‘golden hello’ given to the new head of UK operations Trevor Matthews, after which the company pledged to review its policy on such welcome packages.
However, that acrimonious shareholder meeting was nothing compared to the Barclays (LSE: BARC) (NYSE: BCS.US) shareholder meeting in the same year. The bank’s chairman had to beg shareholders to behave in an “adult” manner after angry heckling disrupted proceedings.
Nearly a third of shareholders refused to back the bank’s remuneration report, following a year in which the bank handed out more money in staff bonuses than it did in dividends. Quite a lot more, actually, with £2.1 billion going to staff and £700 million to dividend payments.
This year there has been similar dissent, particularly when it was revealed that 481 Barclays bankers had received more than £1 million over the previous 12 months.
So where can you find value?
If you invest in a company, you are most probably not motivated by bitterness or envy; you just want to be sure you’re getting the best value for your portfolio.
After all, we can’t all rely on pay bonuses to make our millions; some of us have to do it ourselves!
