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Blog : BOARD TALK

Fairness Matters: Shareholders Flex Their Muscle

Posted on April 4, 2013 at 8:50 AM

The AGM season for UK plc is almost upon us - and boardrooms everywhere are doubtless hoping that the inclement weather will continue long enough to prevent any nasty attendances and upsets....


PIRC, the UK stewardship group, has produced a little primer with data on UK AGMs that might reassure those who have nightmares about 'Return Of The Shareholder Spring.'


Here are some of the figures from FTSE350 companies, excluding investment trusts, which held meetings in 2012. All figures are 2012 season.

Director election votes  average vote against  1.83%   average abstention  0.96%

Remuneration report votes  average vote against 6.82%  average abstention 2.54%

Remuneration report defeats 

Aviva - Cairn Energy - Centamin - Darty - Pendragon- WPP

Auditor appointment votes  average vote against  1.07%   average abstention 0.92%

Votes on receiving the report and accounts  average vote against 0.47%   average abstention 0.59%


That's the context. Here's the future:


The LAPPF, (Local Authority Pension Fund Forum) which represents pension funds with assets of over £115 billion, has called for an overhaul of executive pay.


In a hard-hitting statement, it says: " The current system of executive remuneration is broken and companies and investors must tackle the scale and growth of pay, rather than focus on structure alone." (my emphasis)

It  has issued a new report “Expectations for Executive Pay”, which proposes a new approach to remuneration. The paper, which has been sent to the FTSE350, includes 15 proposals structured around four themes: structure and incentives, pay equity, executive recruitment, and consultation and decision-making.


There is some terrific detail - click here for the full report.


And, for now,  here's an amuse-bouche:

 

  •  a clampdown on packages for incoming directors, a ban on ‘Golden Hellos’, an end to the use of benchmarks to help set pay, and a more open recruitment process. All companies to disclose pay ratios, to help address investor and public concern at the widening gap between the boardroom and the shop floor.
  • an end to  the unsustainable practice of providing new executives with pay packages that are equal to or greater than that available to their predecessors. LAPFF believes this has led to an upward spiral in executive pay resulting in ever-greater pay inflation for top level employees.
  •  LAPFF suggests remuneration committees consider setting the total pay of any new incoming executive at a level below that of the outgoing one. This reflects the reality that, with any new job, there is a period of learning and adjustment. This would leave room for modest pay rises based on exceptional performance as new executives grow into their role.
  •  An end to market benchmarks to determine pay levels as this only further inflates executive rewards.

The suggestions are based on the following eminently sensible conclusions:

  • Money is not necessarily the best motivator to recruit and retain executives
  • More pay does not necessarily equal better performance
  • Complexity leads to confusion
  • But current performance periods of LTIPs are not long enough
  • Fairness matters
  • Conflicts of interest breed dysfunction

 


So I recommend you read the report. If you do, you will be in good company, which is growing. Not just the 'experts' but people who believe that companies increasingly need to be challenged on social issues. And fairness does matter.


They include Britain’s largest trade unions, which  are joining forces to challenge companies over issues such as excessive executive pay and - another one dear to my heart - the lack of women on boards - by exercising their votes as shareholders.


The Trades Union Congress (TUC) (which now has a woman as its general secretary, Frances O'Grady)and its two biggest affiliates, Unite and Unison recently announced new guidelines on how they will vote on behalf of their staff pension funds, which control £1bn worth of shares in UK companies.


 

Trade Union Share Owners is the name of  the group they have formed - and it will  work with Pirc to ensure their pension funds take a common voting position. The FT story, if you have access to FT.com, is here.


if you don't, read all about it here.  And please share this blog. Thank you.



 






Categories: Stewardship, Shareholders, Leadership