Bill Jamieson: Even shareholders are revolting against fat-cat pay deals
It’s a heart-warming time of year – the season of giving, of helping people less fortunate than ourselves, of thinking of others. We tend to see so little of that over the other 11 months of the year. Even among those to whom we look to set an example, personal greed and excessive rewards are now all-too-frequent features of corporate life.
The latest troubling example of boardroom excess is the row at FTSE100-listed housebuilder Persimmon. Chairman Nicholas Wrigley has resigned over his role in creating one of the biggest-ever executive pay schemes in “a warning signal to pay committees”.
He and Jonathan Davie, chairman of the company’s remuneration committee, are leaving the group as it prepares to start paying out around £109 million (yes, in case you didn’t believe it the first time: £109m) to chief executive Jeff Fairburn. Their departure is a recognition that they did not cap the remuneration scheme when it was introduced in 2012. And, lest we thought that more than 30 years of executive pay reports, studies, codes of practice and a deluge of pleas for moderation and reform may have exercised a restraining hand on all of this, a deeply depressing list of (largely ignored) shareholder revolts over fat-cat pay was published this week.
That it is not from Momentum or some far-left group of agitprop Corbynistas lends it all the more authority. It comes from the trade body the Investment Association (IA), whose members manage the pensions of millions of UK households.
It’s the first ever public register of listed companies which have had significant shareholder rebellions. It covers FTSE all-share companies which have received votes of 20 per cent or more against any resolution or withdrew a resolution prior to their AGM this year.
Its key findings are that more than one in five (22 per cent) of companies listed on the FTSE all-share feature on this register of shame. Pay-related issues top the list of shareholder concerns, with almost four out of ten (38 per cent) resolutions listed on the register being due to high votes against pay-related proposals – shareholders voting against companies’ annual remuneration reports, remuneration policy or other remuneration-related resolutions. For those who have been following this issue for over 20 years – I remember covering the Greenbury report in the 1980s – this is deeply depressing.
A key purpose of the public register is to focus attention on how these companies respond to the concerns of investors.
IA chief executive Chris Cummings said: “A significant number of companies need to seriously start listening to shareholder views and acting on them. Bringing all this information into one place and giving companies the chance to explain how they are responding to the high vote against, will be invaluable in helping our members put savers’ money to work in the UK’s best-run companies.”
Fine words. But we have had fine words on the issue of boardroom pay since the early 1980s. Many of these came from the most respected figures in business and corporate life – sources that could hardly be accused of being anti-wealth or opposed to big rewards when these are seen to be earned and fully supported by shareholders.
But it took many years for some of the biggest institutional investors to express any views on boardroom pay, still less vote against remuneration reports. Some indeed were using the same firms of “executive remuneration consultants” wheeled on to provide convoluted rationale for extraordinary pay awards, bonuses and “long-term incentive payments”. Indeed, it is frequently the case in annual reports now that the report of the remuneration committee takes up more pages than the directors report on underlying trading performance.
Sadly the deeply flawed approach of these committees has been copied by public sector bodies – including our universities where some vice chancellors are now rewarded like swashbuckling entrepreneurs. On the plus side, one third of companies on the IA’s public register have responded by publishing a statement on how they are addressing their shareholders’ concerns. But all too often significant pay revolts in the form of votes against the board still seem to have little effect.
Examples cited in the register include construction giant Kier Group (37 per cent of shareholders voted against the board last month). At Morrisons supermarkets, just under half of shareholders voted against chief executive David Potts’ pay packet at its AGM in June after his long-term share awards increased from 240 per cent of salary to 300 – this despite his targets being reduced.
At Sports Direct, there were two shareholder revolts this year: in September, when 47 per cent voted against the re-appointment of chairman Keith Hellawell after a string of scandals at the retailer, then, at an extraordinary general meeting more recently, when shareholders voted against awarding an £11m bonus to John Ashley, brother of founder Mike.
At WPP, more than a fifth of shareholders voted against Sir Martin Sorrell’s bumper £48 million pay packet at its AGM in June.
Other runners and riders this year included Telecom Plus (49 per cent voted against the board); Burberry (32.4 per cent against); Premier Oil (25.6 per cent); Pearson (65.6 per cent); Drax Group (33.6 per cent) and Crest Nicholson (58 per cent).
Now Persimmon is under fire. Its long-term incentive plan (LTIP) is now due to start paying out £800m shared among 140 senior staff. It is particularly controversial as Persimmon’s profits have been boosted by the government’s Help to
Buy programme, which allows new-build homes to be bought with a five per cent deposit. This scheme finances 50 per cent of the homes it builds and sells, the highest of any major housebuilder. Last year, Mr Fairburn was paid a bonus of £1.27m as well as his base salary of £647,747. How about a bonus scheme based on the number of homes Persimmon actually builds – with a deduction made for that government support?
It’s tempting for apologists to argue that rows over boardroom pay are driven by class envy. But reputational integrity is a vital asset for the UK. We seek to promote our legal system, our framework of company law and our standards of corporate governance as being among the best in the world. And it is fair to say that most companies exercise care and responsibility in business practice. But there is a significant minority of firms that not only threaten this global reputation but also fuel discord at home. Those seeking an explanation for the rise of support for Corbyn and the upsurge of enthusiasm he enjoys among young voters need look no further than the widening gap between executive reward and average pay in the companies they run. That is the reality that will quickly resurface once the glow of seasonal cheer begins to fade.
Too many in Britain’s boardrooms seem blind to the manner in which their own excesses are working to create a burning chain-reaction – one that could prove their own funeral pyre.