This blog gives you the latest topical news plus some informal comments on them from ShareSoc’s directors and other contributors. These are the personal comments of the authors and not necessarily the considered views of ShareSoc. The writers may hold shares in the companies mentioned. You can add your own comments on the blog posts, but note that ShareSoc reserves the right to remove or edit comments where they are inappropriate or defamatory.

Anglo American and Pay

Following ShareSoc’s recommendation to vote against the Remuneration Report at Anglo American, yesterday the company received 42% of shareholders votes AGAINST it. Other advisory bodies also recommended opposition and this is a significant snub to the board which they will have to do something about. The ShareSoc press release we issued is here: https://www.sharesoc.org/pr74angloamercian.html

The Investment Association which represents institutional investors has published a report which suggests that pay in public companies is “not fit for purpose” and needs reform. This has led to loss of public confidence that remuneration is fair and reasonable. The report wants reform of long-term bonus schemes and more transparency.

The working group’s Chairman Nigel Wilson (Legal & General CEO), said: “The current approach to executive pay in UK listed companies is not fit for purpose, and has resulted in a poor of alignment of interests between executives, shareholders and the company. Greater transparency, clearer alignment of shareholder, company and executive interests, more accountability on the part of Remuneration Committees and greater engagement with and control by shareholders, working through company boards, are vital to restore confidence in a system widely seen as broken.”

One could have not said it better. The remuneration setting arrangements in public companies need very substantial reform and it is clear that Vince Cable’s reforms such as a “say on pay” for shareholders and better reporting may have helped, but they have not been the final solution.

Remuneration needs to be taken out of the hands of board directors and grossly simplified. All these complicated structures of multiple bonus schemes and LTIPs devised by remuneration consultants have compounded the problem and enabled directors earnings to rise irrespective of the performance of the companies they control. This is what really stuck in the craw of shareholders in companies like BP and Anglo-American – the only saving grace in the latter was that total reported pay last year was not exceptional for a FTSE-100 company where the general level of pay is now outrageously high – perhaps that is why the vote just passed. But the potential going forward is still enormous.

The Government should surely take the initiative in promoting some changes to tackle these issues because nobody else is going to take it on voluntarily.

Roger Lawson

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