Misdirection in the exec pay debate

BIS is currently consulting on a series of executive pay reforms that would improve shareholder rights in this area. I've noticed already that there are some misunderstandings emerging, an in some cases some parties benefit from such misuderstandings. So I thought I'd tackle a few particular arguments that could be used to derail the BIS proposals.

1. A binding vote would interfere with contracts.

I'm increasingly convinced, the more directors' contracts that I read, that this is simply false. Most contracts seem to say the director can participate in bonus and incentive schemes under the rules of those schemes. Where specific targets/payouts are mentioned, contracts seem to say that the rem comm has discretion to change them. In a sense this should not be a surprise, since otherwise contracts would have to be rewritten all the time to take account of changes to bonuses and LTIPs

2. Shareholders would oppose less often with a binding vote.

This is the "giant snakes will roam the land" argument - or unintended consequences if you prefer. We can't know that this will happen and I do wonder which investors are planning to vote less often if such a binding vote were introduced. As a comparator, we don't think there has been an across-the-board change in voting on director appointments since annual elections were introduced. Yet it was argued that, with the ability to dump a whole board, investors would vote more cautiously when it came in. Shareholders already vote down share schemes on occasion, so, on reflection, I don't buy this one. It's just another Hirschman special.

3. Having two remuneration votes would be too complicated.

Except that we often do already have two (or more) remuneration votes - on the rem report and on any new share schemes. Also Amec already has a vote on both the report and the remuneration policy, so if they have a new scheme proposed on the AGM agenda you get pay three votes. This also happened in the US last year - Say when on pay, say on pay + other manager or shareholder proposals on pay. And in some European markets can't you get several too? (management board fees, supervisory board fees, new incentive plan.)

4. A 75% threshold to pass a pay vote would be too high.

Except you already need that level of support on special resolutions for things like share issue authorities, changing company articles and... ahem... calling meetings on short notice. You can make the argument - looking at a forward-facing vote on policy - that, since you giving authority to the directors to help themselves to the company's assets, a higher level of support should be required.