PIRC and Railpen have jointly published a report today looking at the experience of six years of having a shareholder advisory vote on remuneration. There are both positives and negatives. In respect of the former, notice periods have come down (which should mean less payment for failure risk) and there has been a shift to performance-related elements making up the larger part of total remuneration. But on the other hand, total reward has risen rapidly, with little evidence of a good link to performance (directors seem to do very well in good years, and a bit less well in bad years).
I would make two points in defence of the shareholder vote. First, we don't know what might have happened without its introduction, though if we look to the US, where there is no vote, pay levels are much higher, and huge pay-offs despite failure still occur. Secondly, shareholders haven't used their vote effectively, with average votes against remuneration reports very low. Companies can legitimately say that what we see is what shareholder have approved. If shareholders had been more willing to vote against more reports we might have a different picture. Having said all that, I was speaking to a large institution who was sceptical about the value of a shareholder vote on remuneration policy, and worried by its potential role in legitimising high pay.
I also noticed at the seminar launching the report more evidence of the scepticism I blogged about previously in regard to the motivating effect of performance-related pay. Some investors aren't convinced it works, and nor are some directors. Notably Dan Ariely got a couple of mentions for his work in this area. There is also a general feeling that remuneration has got way too complex (which must itself raise questions about whether directors can be motivated by the schemes in place). And finally, I think there is some interest in having a look at the split between employee and director remuneration, and whether recent trends make any sense for shareholders. I get the impression that some interesting stuff is bubbling away under the surface of the remuneration debate.
PS. If anyone wants a copy of the report email me and I'll send you the PDF.