One thing the banking crisis brought home to many of us was the widening gaps between executive pay and average wages, with the former apparently soaring unstoppably while the rest of us face austerity and real-terms drops in income.
The remuneration and pension handed out to Fred Goodwin, the boss of Royal Bank of Scotland during its calamitous crash, was just one example.
Earlier this year, shareholders were furious over the size of bonuses paid to four directors of turnaround specialist Melrose, after the firm’s hostile takeover of British automotive and aerospace engineer GKN. The £42m paid to each of four directors was contested by 26% of shareholders at the company’s subsequent AGM, which is something that would have been unheard of not that many years ago.
That rebellion failed, as rules require a 50%+ majority to overturn executive pay proposals.
We’ve also seen investors at WPP up in arms over the wedge of cash handed over to departing chief executive and founder Sir Martin Sorrell, who left the firm in April after allegations of personal misconduct and misuse of company assets (which he denied).
The scale of the revolt that time was bigger, with nearly a third of shareholders rejecting the company’s remuneration plans and 17% opposing the re-election of the company’s chairman. Again, they were powerless to do anything.
Revolting shareholders
According to the Investment Association, the scale of challenges to FTSE companies’ executive pay schemes has been growing, having increased by 25% in the year to 31 July. The group reckons that companies faced “significant shareholder dissent” on no fewer than 237 occasions during the period under scrutiny. Votes against the re-election of directors apparently doubled over the same timescale.
If you think the directors of the companies in which you own shares are being rewarded too handsomely for the performance they are achieving, what can you do? After all, we are supposed to be their bosses, not the other way round.
One thing is to always exercise your right to vote at your companies’ AGMs if you can. Now, most private investors hold their shares in nominee accounts — we are the beneficial owners, but our individual names are not listed on the companies’ share registers.
But there is a way round that, by getting a ‘letter of representation’ from your broker, which will even allow you to turn up at the AGM and add your dissenting voice.
Of course, most private investors don’t have much sway in changing things, but the more we make our voices heard, the more we can raise concerns with the institutional investment firms who do have the clout. And more and more of them are becoming critical of executive pay deals rather than acting as rubber stamps.
Just don’t buy them
I’m also a fan of ShareSoc, a non-profit organisation dedicated to representing small shareholders and helping us have our voices heard. The society website has a lot of useful info too.
But for for me, the bottom line is to vote with my investment cash. One of my key investment requirements is a board of directors whose records show that they put shareholders first and do not focus on lining their own pockets. If I don’t see that, I won’t buy. And if I see increasing self-interest later, I’ll sell.
