From Aviva to UBS, shareholders are voting against boardroom pay deals at underperforming firms. Now make them binding
Call it Thunderous Thursday: 54% of shareholder votes were cast against Aviva’s pay report; at the Swiss bank UBS, 37% voted against pay proposals; and the satellite firm Inmarsat suffered a 40% revolt. Shareholders – after years of supine behaviour – are sending a loud message that the soaraway boardroom pay at underperforming companies must be confronted.
But have boards heard? Aviva’s directors seemed stupefied yesterday. The “apology” delivered by Scott Wheway, chair of the pay committee, was nothing of the sort. “We, and I personally, recognise that we can and should have done more to engage with our shareholders,” he said. Did that mean he still thinks he got the decisions right? It seemed so: “We believe we made appropriate remuneration decisions in 2011.”
Boards’ notion that something called “engagement” lies at the heart of their problems was also heard last week at Barclays, where chairman Marcus Agius was sorry for not having done a good enough job “articulating our case”. The plea is a cop-out, a weaselly attempt to pretend that shareholders would see things differently if only they understood the facts.
At Aviva, the relevant facts seem straightforward: the dividend was cut in 2009, the share price has been going nowhere for years and yet chief executive Andrew Moss collected a pay package with a face value of £5m last year. At Barclays, the tale was similar – the bank reported a feeble return on capital and yet spent £2.1bn on bonuses and only £700m on dividends for the owners.
In the background, some companies try to promote other narratives-cum-excuses. The revolts, they say, are shareholders parading their virility in order to persuade business secretary Vince Cable not to legislate on pay. Or perhaps fund managers want to discourage the outside world from scrutinising how much they skim off in fees.
There may be a grain of truth in both ideas (and more light on fund managers’ fees is certainly overdue) but the fact remains that companies that deliver the goods for shareholders don’t suffer the same dissent.
Look at GlaxoSmithKline, which was the first member of the FTSE 100 index to suffer a majority vote against its pay report in 2003. That led to a fundamental rethink at the drugs company. Chief executive Andrew Witty is certainly not poorly paid (he took home £5.7m last year) but he earns less than his predecessor and is regarded as doing a better job. Result: 96% approval yesterday for the pay report.
Whatever the targets of protest votes would like to believe, we are not witnessing an across-the-board movement against high boardroom pay. Companies are being singled out only when shareholders believe the directors are helping themselves to good money for bad performance. The best remedy is the one Cable has identified: make votes on pay binding and forward-looking. It’s the only language boards such as Aviva’s will understand.