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Shareholders revolt over bumper boardroom pay

May 6, 2012

LONDON: Top British companies face a wave of investor activism as shareholders rebel over boardroom pay, amid under-performance in the poor economic climate and state moves to clamp down on corporate greed.

Insurer Aviva became the latest victim on Thursday, when more than half of its shareholders rejected annual executive pay awards, delivering a major snub to chief executive Andrew Moss at the group’s annual meeting.

Aviva revealed that 54% of its shareholders voted against the insurer’s remuneration report. Including abstentions, almost 59% of investors failed to endorse it.

The defeat – the fourth revolt since advisory votes were introduced in 2003 – came despite Moss waiving a pay rise that would have taken his annual salary above £1 million (US$1.6 million).

Aviva chairman Lord Colin Sharman apologised to investors on Thursday for ignoring their views when setting pay.

“We recognise that a number of shareholders feel that we have not reflected their views, and overall shareholder value, in the judgments we made on remuneration and for this the board and I apologise,” he said.

“We also recognise that companies need to engage with shareholders on a more proactive basis around the sensitive area of executive remuneration and Aviva will continue to consult and engage with shareholders in this regard.”

Aviva’s rejection vote was non-binding but is nevertheless a major embarrassment.

And the remuneration report would have been thrown out completely had new measures to give shareholders binding votes – as proposed by Britain’s coalition government in January – been brought into effect.

The insurer’s share price, which has been hit by its exposure to debt-plagued eurozone economies such as Italy and Spain, is almost 30 percent lower than one year ago.

Meanwhile on Thursday, newspaper publisher Trinity Mirror announced that boss Sly Bailey would step down, amid a looming shareholder revolt over her pay package.

Anglo-Swiss mining company Xstrata also received relatively low approval ratings for its executive remuneration report.

That news came after AstraZeneca chief executive David Brennan announced his retirement the previous week, amid investor concern over his stewardship of the group.

At Barclays bank, meanwhile, almost one third of its shareholders chose not to back its executive pay awards late last month amid controversy over chief executive Bob Diamond’s hefty wage package.

The lender announced that 32% of shareholders had either voted against or withheld support for the bank’s 2011 remuneration report.

Investor group Pensions Investment Research Consultants has repeatedly called on shareholders to vote against “excessive” pay.

‘Clear market failure’

Barclays chairman Marcus Agius apologised to shareholders, saying that management “have not done a good enough job in articulating our case”.

He vowed: “I assure you that in the future we will be engaging differently and more purposefully with shareholders in order to ensure that we obtain a broader level of support on remuneration policy and practice.”

Simon Bittlestone, commercial director at business consultancy Metapraxis, said that shareholders were becoming increasingly vocal.

“The challenge for shareholders in a volatile market is to distinguish between those management teams who are doing a good job in tough conditions and those who are not,” Bittlestone said.

“Clearly, given the dramatic increase in top-level pay and no corresponding overall improvement in performance, some are not earning it.

“This seems to be the view of many shareholders at the likes of Barclays, Aviva and UBS.”

Bittlestone warned that revolts would continue without clearer guidance on the overall performance of companies.

“It is hard enough for the board to get to grips with real underlying performance, let alone shareholders, who are often given little useful forward-looking quantitative information on which to base their judgment.

“Until there is a focus on extracting insight from the increasing wealth of data available in a rapid and clear way… we can expect the revolts to continue.”

At the start of the year, the British government unveiled proposals that would give shareholders binding votes over executive pay, encourage greater transparency, and create more diverse boards and remuneration committees.

The proposals remain under consultation.

Vince Cable, a key Liberal Democrat member of the Conservative-led coalition government, said in January that there was a “disconnect” between boardroom pay and company performance, and described the issue as a “clear market failure”.

The coalition wants companies to produce a distribution statement to allow shareholders to compare executive pay with other dispersals – such as dividends, business investment, taxation and general staffing costs.



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