Vince Cable, has backed ‘shareholder spring’ saying it is the ‘right way’ to deal with executive excess
The “shareholder spring” that has rocked boardrooms over recent days is set to intensify this week, with investors challenging executive pay at bookies William Hill, Ben & Jerry’s ice cream maker Unilever and gas group Centrica.
The grassroots rebellion has been given support by the business secretary, Vince Cable, who is to meet institutional investors in the next couple of days and who says it is the “right way” to deal with executive excess .
The first new flashpoint will be on Tuesday, when the board at William Hill tries to push through a generous new pay package for chief executive Ralph Topping, complete with a rise and £1.2m “retention bonus”.
The UK’s biggest bookie, with 2,370 betting shops, was dragged into a row last year over a 56% hike in Topping’s remuneration package. The Association of British Insurers has issued a warning to its members about the latest bonanza at a time when William Hill’s operating profits have shown no growth.
On Wednesday there is expected to be another potentially stormy annual general meeting at Unilever, where shareholders are expected to register their concerns about a generous new long-term incentive scheme which some estimate could involve payouts of more than 400% of his salary. Chief executive Paul Polman has already been given a rise in his basic pay, taking him close to £1m at a time when the group operating profits grew by only 1%.
On Friday there are likely to be loud complaints from shareholders at Centrica, where the boss, Sam Laidlaw, has accumulated a £4.3m remuneration mountain at a time when corporate earnings are flat and the Big Six energy company is under attack from politicians and the public over “rip-off” prices.
The biggest row is set to break out next month, however, over the £13m in salary, bonuses and benefits for 2011 awarded to Sir Martin Sorrell, chief executive of WPP, the world’s biggest advertising agency.
The increasing militancy of shareholders first came to a crescendo last Thursday when five companies faced revolts over executive pay. The storm centred on the annual meeting of insurance giant Aviva, where more than half of investors voted against the company’s remuneration report, claiming the pay packages proposed for top brass including chief executive Andrew Moss represented rewards for failure.
But the “shareholder spring” – named after the popular uprisings in the Middle East – has also been aimed at corporate regime change and has prompted both Sly Bailey, the boss of newspaper publisher Trinity Mirror, and David Brennan, the head of drugs group AstraZeneca, to stand down. There are now rumblings from some quarters that Moss may be replaced at Aviva.
The mood of rebellion has also been stoked up by a public feeling of resentment that executives appear to be receiving ever more lavish pay awards when the rest of the country suffers from economic downturn. The attacks have been partly encouraged by new reforms coming from Cable under which shareholders would be given a binding vote on pay and not just the advisory vote brought in by Labour.
“Shareholders are beginning to flex their muscles but it’s unlikely to be sustained unless they feel their votes count,” Cable said at the weekend.
The business secretary is due to meet institutional investors in the coming days to discuss his proposals for binding votes on remuneration pay policy. It is understood that some big shareholders believe the threshold for acceptance should be as high as 75% but the Confederation of British Industry wants it as low as 50%.
Chuka Umunna, the shadow business secretary, said he believed the threshold needed to be pegged at the higher limit. “There is no point in having a binding vote if it does not have teeth,” he argued, pointing out this was a vote on policy, not individual remuneration packages. He is concerned that the right wing of the Conservative party, angry about its local election drubbing, will undermine Cable and demand a return to light-touch regulation and inaction on executive pay.
Deborah Hargreaves, chair of the High Pay Commission, said there was a new mood that extended across society in America and western Europe as well as Britain that excessive remuneration at a time of economic and social hardship offended a wide “sense of fairness”.
The vote at Aviva that saw a majority against the proposed remuneration report was replicated at London-listed mining house, Central Rand Gold, where 75% of its investors rebelled. This was only the eighteenth time that such reports have been voted down since the procedure was introduced a decade ago.
Remuneration in some cases has just been a smokescreen for other concerns, according to some shareholders. “A lot of these pay revolts have [really] been about bad strategy,” said one.