Tuesday, 10 July 2007

Investor pressure over exec pay

There has been a string of AGMs lately where investors seem to be pushing back on executive pay arrangements. A fairly common problem is that companies are arguing that they need to pay their directors even more to stop them taking private equity's dollar. I'll write more about this when I have more time, but the bit below from The Grauniad sets the tone quite well. The Cable & Wireless AGM next week might see a bit of a spike in votes against management.

Investor pressure mounts to curb boardroom bonuses

· Pay schemes at M&S and C&W run into opposition
· Telecoms company fights to raise payout ceiling

Julia Finch
Thursday July 5, 2007
The Guardian

Some of the UK's biggest companies are facing pressure from shareholders to scale back directors' pay deals and set more challenging targets for boardroom bonus payouts.

Marks & Spencer has been forced to set a tougher target for its chief executive, Stuart Rose, to achieve maximum payouts and Cable & Wireless is facing a substantial vote against changes to its pay plan that could reward its chief executive, John Pluthero, with more than £20m and provide a bonus payout to the group's part-time chairman, Richard Lapthorne.

Last week some 18% of Tesco shareholders refused to back a new pay scheme for chief executive Sir Terry Leahy that could generate up to £11.5m if the grocer's new convenience store chain in the US proves successful. The Association of British Insurers, whose members speak for 20% of UK-listed shares, designated the Tesco scheme as an "amber top" on concerns that the scheme set a precedent in rewarding Sir Terry for the results achieved by only one part of the business.

The amber rating is the middle of three rating levels, between a blue for no problems and red, which urges investors to vote against. Amber urges shareholders to consider the issue carefully and make up their own minds.

Last year Mr Rose, who has engineered a turnaround of M&S, was handed a pay package worth £3.9m and promised shares worth four times his salary - an additional £4.5m. Together with two other board directors he was promised the same again this year if he produced a pre-set level of earnings per share. M&S introduced the scheme only a year ago and insisted at the time that the maximum payout was only to be used in "exceptional circumstances". A spokeswoman explained that the rewards were required "to ensure these people are retained".

After consultations with shareholders the eps target has been set higher and the ABI has awarded it a blue top. However, the shareholder group PIRC - which advises local authority pension funds - still opposes the scheme, describing it as "excessive".

The ABI has given the proposed C&W scheme an amber rating. The telecoms group introduced a new "private equity style" pay package for 60 senior executives last year, which could pay out up to £216m by 2010. Under the terms of the original scheme the two most senior men - Mr Pluthero and Harris Jones - stood to make more than £20m each if they more than doubled the C&W share price. After pressure from the ABI the company agreed to a £20m cap - but the company has asked shareholders to scrap that ceiling at its annual meeting on July 20.

PIRC is urging its members to vote against the scheme, saying the targets "are not considered challenging". It is also urging shareholders not to support the re-election of Mr Lapthorne, who is in line for a bonus of up to £10m if he meets performance targets.

Mike McKersie at the ABI said he did not believe pay was spiralling out of control but said investors had to be mindful that it could. "It is like inflation", he said. "If you are not vigilant in the early stages then it is difficult to pull it back."

He added that shareholders were not completely convinced by the "alleged pressure" on pay exerted by some of the "mind-boggling" rewards available in private equity. "More people think they could go off and earn large amounts [in private equity] than could actually do it".


Citizen Andreas said...

I'm unconvinced by this "We'll just take the private equity dollar" business, even if the execs were to leave, I'm not really sure that these people are irreplacable.

Tom P said...

Yeah exactly. It's just another justification for paying themselves more money. If it's not private equity, it's to stop them leaving for the US, or a rival company, or another excuse. Have to say exec pay is the one issue I become more left-wing about as I learn more about it.

Anonymous said...

A broker in commodity based derivatives working mainly with financial counterparty will have less issues implementing the directive. Their business is basically a Los Angeles business investment business and some of the principles behind the details of MiFID and CRD clearly apply to them.