Wednesday, 13 June 2012

It's Complicated

The media have reported the main findings of the executive remuneration survey of the proxy advisory company Manifest and the remuneration consultancy MM&K, adding fuel to the fire in the belly of many shareholders.  The survey found that the median rise of FTSE100 chief executives rose 10% last year, the average rise being 12%.  The median CEO salary in 2011 was £3.7m for the FTSE100.  The increase was 5 times the increase in average earnings across the economy, well above inflation, while the FTSE100 index fell 5%.  Half of the FTSE100 CEOs were awarded increases of more than 10% in 2011. One quarter received increases in total remuneration awarded of 41% or more.

A fund manager, in defence of current executive pay trends said, ‘strongly performing chief executives are worth a lot of money…these people don’t just turn up for work and drink coffee.’   I can’t think of a single person who actually does that, apart from professional coffee tasters.  And I’ve no doubt that their expertise makes a vital contribution to a coffee company’s success.

Total remuneration £m

Total rem vs annual return to shareholders
HSBC Holdings
Negative return
BAE Systems
Negative return
BP plc
Negative return
Negative return
Negative return
CRH plc
Negative return
Wolesley plc
Negative return
Capita plc
Negative return
British Land Co
Negative return
Man Group
Negative return
Land Securities
Negative return
Capital Shopping Centres Group
Negative return

I attended Manifest/MM&K’s survey launch yesterday which included a review of the highlights of the report as well as a panel discussion of the remuneration problem in the UK.  There were some interesting contributions by Dr. Ruth Bender of Cranfield School of Management, Dr. Daniel Summerfield of Responsible Investment and Michael Wemms, chairman of the remuneration committee at  Much of the discussion focused on the ‘shareholder spring’ and the challenges of communication and understanding between companies and shareholders.  This was the gist of the discussion on the problem of executive pay:

  • Executive remuneration is complicated;‘the system is broken.’
  • It’s complicated for reasonable reasons.
  • It’s time consuming and difficult to understand.
  • It’s necessary for shareholders to understand a good deal about executive pay in order to responsibly execute their fiduciary responsibilities.
  • It would be helpful if executive pay were simplified and comparable.
  • On the other hand, it would also be better if it were more bespoke.
  • It will be difficult to simplify.
  • It’s complicated.


There was a noticeable level of frustration in the audience over all of this, with a few people raising the more general issue of national and global trends in inequality and a distinct sentiment of ‘why, why does it have to be this way – why does this executive pay problem keep us mired in it?’  Will the shareholder spring have any impact on the very real problems of corporate governance and inequality more generally?  Or will shareholder activism die down when the business cycle finally turns?

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