There are two arguments for executives receiving big pay rises: either they have delivered improved results or they have worked exceptionally hard.
Having for years argued for performance-based increases directors are suddenly switching their argument to say recession has made their task so much harder. They really cannot have so much cake and eat it too.
Shareholders were tolerant of high remuneration rises when share prices and dividends were increasing too because all parties shared in the boom. But now investors’ capital and income has been reduced they want the board to share the pain.
They may even be trying to punish the directors. And they are doing it by the mechanism of the code of conduct on corporate governance - voting against the remuneration report.
There is an awkward squad of shareholders currently moving from one annual meeting to another to embarrass overpaid directors. It has yet to claim a scalp but it has substantial support. Some 38 per cent of BP investors rejected its remuneration report, 33 per cent voted against Pearson’s, 36 per cent opposed Xstrata’s.
The vote is not binding and the pay, bonuses and pension contributions have usually already been paid, but as the AGM season unfolds, it is likely a FTSE company will sooner of later suffer the fate of GlaxoSmithKline, which had to scrap its executive pay plan when rebels won the vote 2002.
Many boardrooms have seriously misjudged not only political opinion but public mood and shareholder anger. Xstrata, the mining giant should not have been shocked by its investors’ dissent: its annual report shows revenues down, profits down, earnings down, net assets down, dividends down (by 64 per cent) and negative cashflow. And in the past year its share price has fallen by 85 per cent.
No doubt running a commodity company when demand collapses is difficult, but what justification could there be for raising executive pay? The wonder is that the vote against was not greater.
Royal Dutch Shell is risking the wrath of its investors by bending its own remuneration rules to give pay awards the prescribed formula would not allow.
As recession bites, companies really must take note of the world outside the boardroom. Pay cuts and freezes must apply to directors as well as the shopfloor. If remuneration committees fail to police directors’ pay they ought not be surprised that investors do their job for them and do it in public.
