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Seminar Report: Shareholder Spring: A very capitalist revolution?

Emily Death reports on the recent HPC seminar

Spring 2012 saw a wave of shareholder rebellions over executive pay packages, dubbed the ‘Shareholder Spring’. Many factors came together to create an environment in which shareholders felt the need to voice their objections through their current advisory vote on the executive remuneration report.  The purpose of this seminar was to discuss the effects and implications of the ‘Shareholder Spring’ as well as considering its long-term sustainability as a part of the overall executive pay debate.

Robert Talbut, Chairman of the Investment Committee of the Association of British Insurers and Chief Investment Officer at Royal London Asset Management got the debate underway with his ‘insider’s view’ of the shareholder actions.

Mr. Talbut gave his thoughts on the widely held belief that the ‘Shareholder Spring’ was a result of poor communication and shareholders no longer supporting high pay. He instead suggested insufficient linkage between pay and performance; the current and continued period of poor returns to equity holders; the ‘one size fits all’ approach of pay consultants; the tough financial times which have left executive looking increasingly both isolated and insulated at the top of the income distribution; and a flurry of political and media interest as significant causal factors. This, Mr. Talbut said, had led to a “tipping point”, a point of no return where shareholder rebellion had become an inevitable result of financial and social factors. Shareholders had, he said, started visibly to alter their actions and reactions to remuneration with individuals and institutions now feeling “more comfortable” voting against specific directors and remuneration packages.

On the other hand, although these ‘no votes’ have garnered a huge amount of public and media attention, Mr. Talbut highlighted the fact that there had only be about 15 companies who had seen significant votes against their pay packages. “The whole idea of executive remuneration”, he said, “is not broken”. Instead he considered the future of the debate, notably Vince Cable’s proposals for business reform, which were described as “workable” and “beneficial in giving shareholders more tools and leverage.”

Obviously there is no ‘silver bullet solution’, moreover overhauling the system to make it more fair and accountable, is likely to be both costly and time-consuming. Mr. Talbut also highlighted the fact that shareholders and the Government cannot act alone and, ultimately, it is the responsibility of boards to choose key issues to tackle. Mr. Talbut concluded his remarks by saying, there is a general desire from all levels of the remuneration structure to lower the temperature around the whole issue of executive remuneration.

Anita Skipper, Corporate Governance Director at Aviva Investors opened her remarks by saying that many steps in the right direction have already been made. There is, however a long way to go, as only the basics have so far been put into place. Ms. Skipper then focused on the specific contribution of shareholders. She commented that we have seen the kind of difference shareholders can make. For this reason, she added, along with the vastly increased public, media and political attention, they are going to remain in the spotlight. She also contextualized this recent shareholder discontent as part of the current, more general expectation for companies to be socially responsible.

Ms. Skipper then considered the make-up of remuneration committees, and the challenges faced in making them more representative. She noted that the suggestion to include an employee in these committees had not been carried forward in government reforms and maintained the importance of these committees representing a “diversity of views”.

Overall, Ms. Skipper concluded that the ‘Shareholder Spring’, whilst not a surprising reaction to the current financial and business climate, fell short of a “real revolution”. She also cast doubt over the continuing appetite for reform into periods of greater financial stability.

The seminar brought together a wide range of industry professionals ranging from the trade union movement to the banking sector, from corporate governance to media. After the speakers had voiced their initial thoughts, the debate ranged far and wide and succeeded in highlighting a plurality of approaches to resolving issues surrounding high pay.

Key areas of discussion included the wider issue of social equality and high executive pay; the link between pay and performance; specifics of pay, including the role of proxy agencies and the length and complexity of remuneration reports; issues of corporate governance such as succession planning and benchmarking companies; and, fundamentally, what is going to change, whether Vince Cable’s business reforms go far enough, or whether a key opportunity for full-scale change is being tacitly substituted for a toughening up of existing structures.

We hope to build on this for the next seminar in our series which will be about issues surrounding high pay in football. The event will take place on the evening of Monday the 13th of August at the High Pay Centre offices. Visit the events page for more information.

Posted on 11 July 2012

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