More fuel to the fire

WPP Sir Martin Sorrell’s showdown with investors may be a test case for UK executive pay

By Michelle Perry | Published 16:53, 12 June 12

The “Shareholder Spring” was refuelled on Tuesday with the news that bosses of the UK’s top companies received on average inflation-busting pay rises of 10 percent last year.

Ordinarily, the news wouldn’t be that surprising, albeit unpalatable for many. But given that the FTSE 100 index fell 5 percent in 2011 the argument that CEOs deserve their top pay for top performance doesn’t hold water with many shareholders watching their returns diminish.

But if you thought a 10 percent pay rise was excessive in the current economic circumstances, then you’ll surely choke on the finding in the annual survey by pay consultants MM&K and proxy voting company Manifest that one in four FTSE 100 CEOs took home increases in total remuneration awarded of 41 percent or more.

Despite the survey findings suggesting no end to spiralling executive pay while the average worker’s pay rises 1 percent, the latest rumours afoot are that the government will back down on its plans to introduce a binding shareholder vote on executive pay.

There are some suggestions that the government may instead consider a triennial vote. Shareholder lobby group Pirc however foresees problems with this sideways move for practical reasons. But whatever ministers opt for Pirc says “Government will need to stand firm on the idea of a vote on exit payments to avoid looking craven.”

Many CEOs of course are fighting back. WPP issued his defence of his salary in the Financial Times last week, warning that if Britain wanted world champions, it needed to pay competitively.

Incidentally, Sir Martin Sorrell took second place in Manifest’s list of the highest paid FTSE 100 CEOs, taking home a total package of £11.62 million.

What I found of particular interest in the study after the headline findings on pay, was Manifest/MM&K’s predictions on future trends. Although they foresee companies having to disclose more, review policies more and explain to shareholders better, they also predict that bonuses will grow but will look less because of increased deferrals.

The study authors also say that the piecemeal approach will continue whereby “a single component at a time is used to justify an increase in that component up to the market rate, without consideration as to whether the package is low in one area to compensate for it being higher elsewhere”.

One point the study makes that few can dispute and where it would be a good starting point for change is that remuneration reports are too long and lack clarity. Remuneration committees should look at how to improve communication with shareholders, the study found.

Without this very straightforward first step the “Shareholder Spring” doesn’t show any signs of dampening over the summer, despite it being an extraordinarily wet one.

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