Power to the investors?

Are investors flexing their muscles too late to discourage government from legislating on new investors powers?

By Michelle Perry | Published 16:42, 03 May 12

Today, Aviva became the latest in a growing list of European companies to face a shareholder backlash over escalating executive pay, when more than half of its investors voted down pay plans at the company’s annual general meeting.

On Monday Aviva tried to head off such a protest when it announced that chief executive Andrew Moss would “voluntarily” surrender his 2012 pay rise. It was a case of too little, too late for the investors though.

Scott Wheway, chairman of Aviva’s remuneration committee, issued a statement saying that investors had told him they wanted to see “an even closer correlation between our pay packages and shareholder returns”. He said that “having listened to them, we have sought to address their concerns”. And today he personally apologised for mistakes made.

But the seemingly opportunistic statement did little to cool investor anger at seeing their returns plummet while bosses pay continued its upward trajectory. Other companies should watch carefully what is happening here because this investor reaction is for a company whose performance has been fairly robust.

In March the insurance group reported a bigger-than-expected 6 percent rise in 2011 earnings and recovering capital reserves. The UK’s second biggest insurer posted an operating profit of £2.5 billion. Last year however shares in Aviva lost almost a quarter of their value due to its exposure to troubled euro zone economies. Investors clearly haven’t forgotten despite recent positive results.

Both Barclays and Credit Suisse have seen shareholder backlashes at their agm’s recently and investor lobby groups like Pirc are busy issuing advisory notes to warn investors to vote down up-and-coming pay deals at companies like Standard Chartered, whose agm is due on 9 May.

It’s curious to see such strong investor discontent when although the UK has re-entered recession for the second time since the financial crisis, recovering is seemingly on the horizon. And we have just experienced four years of extremely tough economic circumstances but little obvious protest from most investors.

Yes spiralling executive pay has been in the headlines a great deal over the past year. Indeed I’ve covered it increasingly over the past 12 months as more and more research reveals a yawning gap between the average worker and bosses at the UK’s top companies. But it seems to have taken a long time for investors to wake up to the positive effects of investor activism and remind directors who the true owners of companies are and that they are, after all, merely temporary stewards of long-standing companies.

What’s really curious though is that these revolts comes at a time when government is taking steps, backed by investor groups, to beef up the powers of shareholders with plans for a binding vote on corporate pay deals and exit payments, among others.

So, what’s the subtext of this current round of investor activism? That, shareholders are unsure about new powers being thrust upon them by ministers? That, they are therefore actively showing business secretary Vince Cable what they can do if they fulfil their side of the bargain and act on excessive pay and other issues. Of course I understand that it is also a definite protest to boards over extortionate pay and bonuses while their returns are diminishing.

CFOs regularly tell me that investors already have at their fingertips the powers to boot out directors or curb pay if they aren’t happy by talking more to both the executive directors and non-executives. So is this a subtle protest within a protest?

I wonder is this round of activism – albeit highly effective – also a show of power to government to discourage Cable from legislating?

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