Tuesday 19 August 2014

A few bits and pieces on exec pay

1. The High Pay Centre has don't a great job crunching the data on employee vs executive pay and found that in the FTSE100 the now stands at 131:1. Of course there are some much bigger individual ratios. Martin Sorrell has earned 780 times the average WPP employee salary (which, by the way, is a very healthy £38K). Lord Woolfson earned 459 times the average Next employee.

2. There's a very interesting interview with the head of the IoD in the Guardian. They go mainly on the exec pay angle, but personally I think what he says about "stakeholders" is most interesting (and if you think about it, this doesn't sit well with his claim at the end that shareholder powers are the answer to the exec pay issues). Here's a snippet:

"We are trying to get back to the focus on governance, on running companies better and in the interests of stakeholders broadly, in the climate we are in today.
"Competition and the market have, in my view, brought greater benefits to humanity than any other movement ever and we need to remind people about that. But we also need to make sure that it is competitive and is run in the interests of all its participants. That is what governance is all about. It is about running a business properly and in accordance with its professed purpose for all its stakeholders."
There are also some digs in there about shareholder value.

3. I spotted an odd comment from BIS at the end of a story on the HPC analysis:

A spokesman for the Department for Business, Innovation and Skills said: "The government has introduced comprehensive reforms to give shareholders more powers in order to restore the link between top pay and performance, which in recent years has become excessive and increasingly disconnected.
"In October 2013 new laws reforming the governance of top pay came into force, boosting transparency by arming shareholders with more information and giving them the power to hold companies to account.
"Business secretary Vince Cable also wrote to all the members of the remuneration committees back in April urging restraint, and while we will need to wait until the end of the [annual meeting] season before we can reflect on the full impact of these actions, many firms have already seen top pay voted down."

Er... many firms?

As far as I know only one company - Kentz Corporation - has actually lost the (binding) vote on its rem policy that the government brought in. And I think there are only two rem report defeats so far this year - Kentz and Burberry.

We might think that the new exec pay regime has had an impact on many firms, perhaps by encouraging them to engage more with their shareholders and earlier (though exactly this claim was made for the advisory vote after it came into force in 2003!).

But it's plain wrong to say that "many firms have already seen top pay voted down." I think the running total this year is 2, and one of them was defeated using the existing advisory vote so it can't even be credited as a win for the new regime.

And in fact there is a much bigger point here. I reckon in the past decade less than 50 companies have lost a rem report/policy vote. Such defeats are rare. If (big if) this is a measure of the success of our governance system for exec pay then is it working?

1 comment:

Simon Fawthrop said...

O/T but I was wondering what you thought of the idea of outsourcing Board positions in this week's Economist? Although I don't tend to agree with a lot of what you write (that's why I read you) it struck me as a very sensible idea that would achieve a lot of you aims.