The backlash began with Sir Fred Goodwin’s pension. When shareholders learnt that the former Royal Bank of Scotland’s chief executive pension pot had been doubled to £16m, providing him with a pension of £703,000 for life at the age of 50, the public anger was palpable. The directors responsible — former RBS chairman Sir Tom McKillop and pay committee boss Bob Scott — were required to step down.
Hostility to bankers remains a hot topic. RiskMetrics, a shareholder voting agency, is urging the rejection of Sir Victor Blank’s re-election at the Lloyds Banking Group 2010 AGM despite the fact that Blank has offered to step down. There is concern about a new incentive plan which could pay executives 200 per cent of their salary in shares if targets are met over the next three years.
The continued hostility to Goodwin over his pension has been more than matched by the outrage over the expenses claims of MPs, a curious mixture of near-fraud, greed and folly. The number of MPs forced from office as a result of the disclosures grows longer by the day as party leaders expel the miscreants and constituents take direct action at public meetings and through petitions.
In parallel to this, shareholders, so often passive down the decades, are taking to the barricades over remuneration. At a time when unemployment is soaring, asset values have plunged and many people are being forced to take cuts in real wages, the “fat cat” bandwagon rolls on.
The most extraordinary revolt so far has been at that bluest of blue chips, Royal Dutch Shell (incidentally, the British half of the business was found in 1897 by Marcus Samuel, the first Lord Bearsted). At the Shell’s annual meeting in the Hague last month, 59.42 per cent of shareholders voted against the group’s remuneration report at a highly charged gathering.
Shell was punished for deciding to go ahead and pay bonuses to senior executives despite the fact that they had failed to meet the strict criteria. What was particularly unusual was the sight of normally cautious investors such as the insurer Standard Life travelling to the Hague to make known their disquiet publicly. It is thought that the chairman of the pay committee, former Reuters boss Sir Peter Job, will find it hard to survive the humiliation.
Another businessman in the firing line over pay is Sir Martin Sorrell of global advertising and marketing group WPP, who is shifting his company’s domicile to Dublin. Sorrell, one of Britain’s most successful entrepreneurs in recent times, had share and incentives schemes which were worth £100m at their peak last year. A tumble in the share price has since taken the value down to £60m.
Shareholder activists at the normally conservative Association of British Insurers (ABI) issued a “red top” notice advising their members — encompassing many of Britain’s largest shareholders — to vote against.
Sorrell is suffering the same fate as the politically ambitious Simon Wolfson of Next. Mr Wolfson encountered shareholder anger at the clothing firm’s sparsely attended annual meeting in Leicester after the pay committee altered the terms of incentive arrangements halfway through the financial year to make them easier to achieve, given slumping profits. The altered incentive arrangements also produced a “red top” from the ABI and an advisory vote against the pay deal by 20 per cent of investors.
The latest directors to attract opprobrium over pay are at BT. Francois Barrault, the former director responsible for BT’s global services operation, which provided IT services to major companies, received a £3.5m payoff — despite being responsible for the meltdown in profits, which has resulted in the loss of 15,000 jobs. Chief executive Ian Livingston has also been criticised for accepting a £343,000 bonus, bringing his total pay up to £1.17m in a year when the group had to take a £1.6bn write-down.
BT explained that Mr Livingston’s bonus was based on good performance in other parts of the business - including improved customer service. He has calmed critics by offering to take the bonus in shares. Nevertheless, the group can be expected to face angry protests at the payment for failure to Mr Barrault at the upcoming AGM.
Shareholder activism over pay is nothing new. Mr Sorrell at WPP has faced regular protests over what are seen as over generous bonus payments for several years, but he has weathered the storm.
The change in the economic climate, however, has produced a new, intensive scrutiny of pay practices. With many ordinary employees being required to make sacrifices as a result of recession, the sight of directors reaping huge bonuses — Cable & Wireless is another case — is no longer seen as acceptable. All it does is widen the gap between top management and those further down the pay scale which, over the decades, has become disturbingly wide.
A combination of the adverse publicity for outlandish bonus deals and rewards for failure is exerting its own pressure on company boards. Institutional investors, who have seen shareholder returns plummet, are showing their frustration. In the current age of austerity, where the public has been shocked by the ethical laxity at Westminster, greed is no longer good and tolerance for excess severely tested.
