WHEB Commentary

Tim Dieppe

A shareholder spring


As the FT pointed out today: “shareholders are revolting, and not in the way Occupy might claim.” One positive consequence of the financial crisis is increased scrutiny of executive pay with shareholders no longer content to sit back and see executives take home excessive pay packages.

Today (3rd May 2012) Aviva suffered a 54% vote against their remuneration report as shareholders objected to a £45k bonus for one month’s work. This is only the fourth time a FTSE 100 company has lost such a vote. In America too, Citigroup saw 55% of shareholders vote against or abstain on a ‘say-on-pay’ vote making them the twelfth S&P 500 company to lose such a ballot. CEO Vikram Pandit was paid a total of $15m last year, lower than CEO pay at JPMorgan Chase or Wells Fargo. All US companies are now required to hold an advisory say-on-pay vote as part of the Dodd-Frank reforms introduced last year. The UK introduced a similar requirement in 2006 and the Combined Code recommends a binding vote on approval of long term investment plans. Barclays saw a 27% vote against their remuneration report last month in objection to Bob Diamond’s $17m pay package.

It is about time that the remarkable rise in executive pay packages over the last few decades was checked. In 1960 the average CEO earned 40x as much as the average worker. This ratio rose to as much as 525x in 2000. The shareholder spring will lead to a summer of more accountability and shareholder scrutiny of companies. Boards have been put on notice. Shareholders are revolting.

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