Did Vince Cable Sanction This Year’s Shareholder Revolt?

2014’s shareholder spring turned into a shareholder summer. Was it all given carte blanche by business secretary Vince Cable? In a speech in March, he announced that he would introduce tougher measures unless remuneration committee behaviour improved. Then, in a letter in April sent to the remuneration chairmen of the 100 biggest UK-listed companies, he warned about the damage big pay deals can have on their image. “At a time when every part of the economy is striving to get more from less, I hope you find yourselves animated by the same spirit…. Unless business is seen to act responsibly, pressure for further action will inevitably result,” Cable wrote.

It started with Barclays, whose CEO later admitted that “a lot more needs to be done” to rein in bankers’ bonuses. The bank withstood four hours of criticism of its bonuses at its AGM, culminating in a rare institutional shareholder rebuke when a representative of Standard Life stood up to announce that it was voting against the remuneration report because “(w)e are unconvinced that the amount of the 2013 bonus pool was in the best interests of shareholders”. Barclays’ pay plans were eventually approved with a small margin.

Shareholder rebellions over directors’ pay continued at Pearson, AstraZeneca, National Express, Standard Chartered, Reckitt Benckiser and online grocer Ocado. Nearly one-third of Reckitt’s shareholders opposed its annual pay report. A fifth rejected the separate pay policy vote; a new, second opportunity to vote on pay policy for the next three years. A fifth of Ocado shareholders also voted against the online grocer’s pay report, objecting to a matching share plan that was due to award chief executive Tim Steiner shares worth more than £12m.

Opposition was often due to criticism by the shareholder body the Association of British Insurers, but most often shareholder advisor PIRC was behind the protests. PIRC encouraged protest against M&S, Sainsbury’s and Sports Direct bonuses and pay plans, as well as at oil firm Afren, G4S, WPP and HSBC. Investec’s pay plan was also opposed, by 44% of shareholders, amid criticism that awards were “excessive”. In the end, most of these plans passed. For example, HSBC had only around 20% of investors voting against the directors’ pay report. But it is widely recognised that even if you have a fifth of shareholders disapproving of pay, you had better start talking to them about it. FirstGroup’s pay approval actually went up this year, from 71% to 80%, but the chief executive still promised a “deep review” of pay.

On the other hand, Kentz was the first company to have its pay plan rejected under the revised rules this year. Luckily, the company has since been acquired by SNC-Lavalin, so it doesn’t have to worry about it anymore. Then in August, another company, Burberry, saw 52% vote against its pay report.

As I said here, the key to most of these votes is performance. Shareholders don’t like high pay and low performance. On the other hand, they will accept low pay and low performance, as at Marks & Spencer, where CEO Marc Bolland declined a pay increase for a fourth year running after the company missed sales and profitability targets. No shareholder revolt there.

So, did Vince Cable sanction these revolts? He certainly was responsible for putting the mechanisms in place for protest to happen. But by lining companies up for a warning at the beginning of the AGM season, he gave shareholders a mandate to object if they felt that companies were not heeding prior warnings.

As High Pay Centre director Deborah Hargreaves has said, the new regulations are not enough to bring top pay down. The Centre’s figures show that pay for a FTSE 100 CEO has gone from being 60 times the average UK worker to 160 times over the last 15 years. Where this level of increase is justified, shareholders are quiet; where it is not, they will protest.