Punishing directors on pay
After bankers and MPs, FTSE directors are now the target of public humiliation. Boards that thought the City was their ally have discovered it is their assassin.
A string of top companies have seen substantial votes against their remuneration reports and the opposition is coming from big institutions rather than the rabble of angry small shareholders. Pearson, BP and Xstrata found more than a third of their investors voting against the pay report while a majority of Shell shareholders rejected it.
Other companies with upcoming annual meetings must be wishing now that they had been more modest in their remuneration. It is too late to change now however; the money has been paid out and all chairmen can do is include a paragraph in the annual report that anticipates the trouble by promising it won’t happen again.
But the high levels of directors’ pay show that boards misjudged external opinion as widely as did bankers and politicians. They got away with rises when profits and share prices were rising, but now they are not delivering performance, the investors are rightly complaining.
No doubt boards are working harder to cope with recession, but that does not warrant extra pay, nor waiving the performance targets when they are not met. Directors who cut the shareholders’ dividend and reduce the workforce really must learn to share the pain themselves.
At one level, the opposition to remuneration reports is token. The pay rises, pension payments or share options have already been given. But they are effectively a no-confidence vote in boards and that should worry directors. Not least, when investors become so angry they demand that heads roll, those with track records of high reward will be closest to the firing line.
The government is kicking institutions investors to act after their failure to curb the banks and the City shareholders are reacting by kicking boards. That does not make it any less painful however. The City shareholders are doing the job the remuneration committees should have done last year before making these awards.
