Boardroom executive pay has been slammed as “rewarding failure” and “unacceptable” following fresh attacks from top City investors on remuneration practices.
After a contentious AGM voting season, Legal & General boss Nigel Wilson warned executives are paid “too much”, adding pay levels were “not fit for purpose” and have resulted in “a poor alignment of interests between executives, shareholders and the company”.
His comments come after BP shareholders were urged to rethink their award of £14m to chief executive Bob Dudley in a year when the company suffered its worst-ever losses.
Bosses at Shire, British American Tobacco and Reckitt Benckiser are also expected to face investigations into their pay packets.
Investor charity ShareAction says Wilson’s comments are a shot across the bows of the corporate sector to push for reform in the way executive pay is structured.
ShareAction director of policy Jon Hoare says “stratospheric executive pay” has for too long eroded public trust in business, undermined morale in companies and reduced value for shareholders.
He says: “Companies are now beginning to recognise the way we pay corporate leaders isn’t working, and this year many major investors have already used their voting powers to signal their dissatisfaction. This should send a clear signal that rewards structures urgently need to be addressed.”
Royal London corporate governance manager Ashley Hamilton Claxton sees a big investor such as L&G sticking its head above the parapet as “a sign of more to come”.
She says: “Royal London has consistently voted against complex packages and was particularly concerned about some companies using more than 30 per cent of pensions as cash top-up for salaries and bonuses.”
Hoare says: “For the millions of British people whose retirement funds are invested in the stockmarket, companies paying out huge executive bonuses that are not linked to performance simply isn’t acceptable.
“Pension funds should seriously question whether these pay packets at investee companies represent the best value for their members.”
In its corporate governance report, published this week, L&G says of the 188 times it voted against company boards last year, half related to pay.
However, L&G head of corporate governance Sacha Sadan says after it asked FTSE 100 companies to review pay policies in 2013, the number of those having more than one remuneration scheme fell from 43 per cent to 18 per cent today, and predicts the number “will continue to fall”.
Earlier this month Co-operative Group chief executive Richard Pennycook asked board members to cut his pay package by 60 per cent, including bonuses and pensions, saying it was “the right thing to do”.
Last week a massive majority of HSBC shareholders approved a new pay policy for executive directors, which will cut the maximum amount directors can earn by 7 per cent.
But the executives’ pay awards for 2015 were backed by 96 per cent of investors, including a total package worth £7.34m for HSBC boss Stuart Gulliver.
Hermes Equity Ownership Services co-head Dr Hans-Christoph Hirt says this voting season is likely to highlight that boards, and remuneration committees in particular, “need to raise their game”.