They all have one thing in common; shareholder revolt against executive pay. Hooray! About time. I just worry that the momentum won't be sustained.
But what is to be hoped is that shareholders have finally woken up, and become fed up by poor performance being rewarded by exorbitant and damaging executive pay. The startling fact is that the FTSE is worth less than it was a decade ago, and yet over the same period executives of the 350 biggest quoted companies have enjoyed a 108% pay increase (recent study by IDS, and reported in MoneyWeek 4 May 2012). Over the same period the value of these firms increased by a measly 8%. Hardly inflation-busting.
Let's just remind ourselves what these people are. They are not entrepreneurs, and they take no business risk. True entrepreneurs should be well rewarded, but these people are not entrepreneurs. They are competent individuals, certainly, but - importantly - who could be fairly easily replaced.
The truth is that shareholders - the owners of these companies - have been fleeced. Matthew Lynn (MoneyWeek 4 May 2012) suggests some ways to stop this rot:
- Pension funds (private and public sector), Unit Trusts, etc., who control the bulk of the UK stockmarket should consult their policyholders on pay. As it stands, most fund managers vote as they please, and because they are part of the same racket, they don't rock the boat.
- How many shareholders go to, let alone vote in a company AGM? Lets face it, these are usually truly dull events. So, separate the vote on executive pay from the AGM, and make it an on-line affair. This would soon increase shareholder participation - and revolts!
- Raise the bar for approval. Change the rules so that an executive pay policy needs 60% shareholder approval.
In order for my one cheer to become two, at least one of the above changes should occur. To become three, all of them.
