Barclays Bank Annual General Meeting yesterday showed how difficult it is to get excessive pay awards voted down. Despite strong opposition from PIRC, F&C and Standard Life (the latter actually spoke at the meeting which is unusual for institutions), only 24% of votes were cast against the Remuneration Report with an even lower number against the Remuneration Policy. There were a number of shareholders who abstained so the media commonly reported 34% of shareholders as failing to support the board, but in essence the vote against was a long way from being won.
The key issue was the increase in bonuses when profits were falling. But the Chairman simply said they needed to increase them to pay competitive rates and avoid their staff being poached in New York. The general level of remuneration versus the dividends paid to shareholders was also an issue – there is a strong feeling the company is being run in the interests of highly paid bankers rather than shareholders.
Only recently Vince Cable wrote to FTSE-100 remuneration committee chairmen warning them that unless pay is curbed then more Government action is likely. He intends to review the position after the current pay round. Comment: Remuneration policies under the new legislation are now being set for the next 3 years. It is very clear that the excessive and complex bonus schemes that have accelerated pay levels for senior staff out of all proportion in the last few years are not being downsized at all. The new legislation is having a marginal impact as ShareSoc forecast because shareholders (most of whom are institutions) have no great incentive to control it. They would prefer to have a cosy relationship with the directors and therefore find it difficult to vote against pay awards plus of course they often swim in the same pool.
Although the new pay legislation has its positive aspects. For example, it does enable shareholders to see pay figures more clearly and gives them a binding vote. In reality, when directors effectively continue to set their own pay, while advised by remuneration consultants who also have an interest in high remuneration levels, nothing much will change. Remuneration committees need more independent representatives on them, or remuneration should be decided by a supervisory board containing other stakeholders (such as employees).
Although the Barclays case is one example that has been in the spotlight, the reality is that those companies where there is less obvious controversy are not controlling pay as hoped. For example, I attended the AGM of Elementis yesterday, a FTSE-250 company. The adopted Remuneration Policy gives a short term cash bonus of up to 1 times basic salary, plus an LTIP of share awards worth up to 150% of salary. It was supported by over 97% of shareholders who voted (on a relatively high turnout of 73%). Plus ça change as the French say. There is a full report on the Elementis AGM here and nobody raised the remuneration issue in the meeting, perhaps because the company is doing reasonably well and total pay for the executive directors did come down due to failure to get their full bonuses last year. But the use of complex pay structures that have ramped up overall pay in recent years is still prevalent.
I would certainly urge Mr Cable to take another look at this problem because better pay reporting and a vote on pay is not enough by themselves to tackle this issue.