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Jul 30, 2012

Shareholder rebels with a cause

A look at some of the UK’s worst corporate offenders as shareholders finally revolt over excessive pay packages

What do daffodils, oppressed people and cross shareholders all have in common? No prizes for guessing the answer is ‘spring’.

Perhaps the more difficult question is why so many in the last of these three groups have raised objections to the amount paid to the CEOs of the companies they’re invested in at this year’s annual meetings round.

Probably the most plausible answer is that it’s for a combination of reasons: financial, emotional and just plain rational.

After all, why should a semi-successful chief executive presiding over a minor rise in profits receive a 30 percent pay rise while dividends remain unchanged and junior staff members at the company get no more than an inflation-related rise – if they’re lucky?

The media have been exerting influence, too, encouraged by UK Prime Minister David Cameron and some of his colleagues complaining about pay levels for bankers in particular, and for FTSE 100 company directors in general.

In the opinion of Sarah Wilson, CEO of UK voting agency Manifest, this has given shareholders more courage than they have typically displayed in the past.

‘They are now part of a group so they are no longer afraid of sticking their head above the parapet,’ she explains.

‘It’s definitely a question of safety in numbers,’ concurs Christopher Mills, managing partner at Harwood Capital Management in London (and a shareholder in Cross Border, the publisher of IR magazine).

It’s also an investor access issue, he adds: ‘If you alone vote against a CEO, he/she doesn’t feel inclined to come and talk to you. But if everyone’s doing it, he/she has no choice.’

In the US it’s only been in the past couple of years that shareholders have even had the right to vote on the question of pay, and that vote is not a binding one.

In the UK shareholders have had an advisory vote for many years but have typically shown either apathy or a lack of any real concern about pay levels – until now.

Raised voices

Now, however, perhaps encouraged by action in the US, especially at Citigroup (see The others, below), the list of European – mostly but not solely UK – targets this year is long and growing: AstraZeneca, Aviva, Barclays, Carrefour, Royal Bank of Scotland, Trinity Mirror, UBS, William Hill, WPP and Xstrata, to name some of the higher-profile examples.

Some of these firms are performing reasonably well, others less so. In all cases, however, 2012 has seen retail investors, shareholder activist groups and, more surprisingly, institutional investors starting to complain about the disproportionate rewards being offered to their CEOs.

A 4 percent increase in profits or share price may be a fair performance in these straitened times, but it doesn’t sit well with a 30 percent or 40 percent compensation rise for the CEO.

More legislative change seems bound to come and Vince Cable, the UK’s business secretary, is already on the case. His initial plan was to convert the current annual advisory vote on executive pay into a binding vote, albeit requiring a greater than 50 percent majority.

After some ‘discussion’ – for which read abusive language, threats and worse – among members of the UK government’s coalition partners, the amendments were watered down.

Cable has now tabled a binding vote to be held every three years – more often if changes are promulgated to compensation arrangements. But he has praised the shareholder spring and says he would like it to be ‘more than a seasonal phenomenon.’

Whatever the future brings, resulting from parliamentary votes or AGM ballots, it seems clear the shareholder worm has turned. Even if it is seasonal, no one expects it to be temporary.

So, for the record, we bring you just three examples from the roll of dishonor – at least in the eyes of shareholders, staff and other stakeholders.

We apologize for any resemblance to salacious magazines and gossip-filled websites, but some stories are just too good to ignore.


The percentage of shareholders failing to back the company’s remuneration plan (59 percent) nicely matched the drop in Aviva’s share price during Andrew Moss’ five years at its helm (61 percent).

It was early May and Moss was about to marry his former business director and ex-wife of Aviva’s head of human resources, one Deirdre Galvin, with whom Moss had admitted having a relationship less than three years previously.

Moss had now divorced his wife, Galvin her husband and the wedding was all set for the day after the AGM.

This may sound like irrelevant detail but it does underscore Moss’ confidence that there would be no need for him to be around and in defensive mode after the AGM was done with. He clearly was not anticipating one of the biggest shareholder rebellions in UK corporate history.

The company did offer last-minute concessions – such as a guarantee that Moss’ total income would be less than £1 mn ($1.6 mn) this year – but to no avail.

The dissent at Aviva may have been more about performance than pay but Moss’ remuneration served as a useful lever and it was only a matter of days before he quit as CEO – albeit with a £1.5 mn pay-off.

History doesn’t relate how the honeymoon in France went, but there’s a certain symmetry to the fact that Galvin herself was given a pay-off to leave Aviva back in 2009 when their affair first became public.


Compared with the situation at Aviva, the tally of ‘no’ votes at Barclays’ AGM was pathetically small. But then the drop in Barclays’ share price was a mere 25 percent, a similar figure to the proportion of shareholders failing to back the pay report (26.9 percent) and the same as the proportion of those failing to back remuneration committee chair Alison Carnwath.

Both the Association of British Insurers and shareholder action group PIRC had urged their members to vote against the remuneration report.

Chief executive Bob Diamond was in line to receive £17 mn, with ‘total realizable remuneration’ of £20.97 mn, despite what he described as ‘unacceptable performance’ last year.

Marcus Agius, the chairman, felt obliged to apologize, and Diamond’s total package was cut by £2.7 mn even before the votes were cast.  

But more recent events have now had implications for Mr Diamond’s personal financial situation. In late June the bank came to a settlement with UK and US regulators to pay more than $450 mn following the investigation of a number of Barclays traders accused of manipulating Libor rates.  

The settlement prompted Diamond and three co-directors to waive any bonus for this year. But, as the Financial Times’ Lombard column said: ‘Somehow it doesn’t seem enough.’ Indeed, by the time IR magazine went to press, Diamond had resigned – albeit with a £2 mn pay-off, twice his contractual due.


The big rise in basic salary and advantageous change in the bonus structure for CEO Sir Martin Sorrell led to protests from advisory firm ISS and others.

It recommended shareholders vote against the remuneration report, which they did in substantial numbers. That was despite a resounding vote in favor of Sorrell’s reelection as a director.

It may be a little-remembered fact that back in 2008 Sorrell won the award for best investor relations by a CEO at the IR Magazine UK Awards.

At the time, one respondent to the awards survey said of Sorrell: ‘Despite being CEO of one of the UK’s biggest firms, he continues to think like an entrepreneur.’ Another noted: ‘The patience and humility shown by Martin Sorrell is unusual among CEOs.’

So how has it come to a 60 percent vote against a 60 percent increase in total compensation to £6.8 mn? Has he lost touch? Sorrell himself came out fighting, in typically robust style, with a defense in the FT entitled: ‘Mea culpa – I act like the owner I am’.  

But perhaps that says it all. As Danny Barrs, responding to Sorrell on the FT’s website, put it: ‘A shareholder earns from dividends and capital gains on his/her shares. A director should act on behalf of the shareholders to maximize their long-term earnings. Employees receive a salary for doing what the directors ask. The success of WPP does not change [the fact] that you are making the fundamental ‘Founding Father’ mistake of confusing those roles.’

Paul Hewitt of Manifest takes the broad view. He believes cases like WPP’s have become controversial this year because of the wider context of recession, poor profits and even worse share prices.

‘WPP has always been right up there in terms of remuneration quantum,’ he says. ‘But now it’s being seen through 2012 glasses.’

Whatever next?

These companies have all failed, to a greater or lesser extent, to engage effectively with their shareholders. Earlier in the year, a group of key international investors – pension funds, church investors and asset managers – set out five principles of executive pay: alignment, transparency, permanent value, reward for success and appropriateness.

Clearly what’s appropriate to one person could be a misalignment to another. But if companies had been talking to their shareholders, they’d have discovered the likelihood of their pay plans suffering ‘no’ votes and done something to make them acceptable.

That might just have been a question of explaining the company’s case better; it might have led to adjustments to the plans.

But either would surely have been better than the negative publicity, embarrassment and humiliation rained down upon so many people in leading positions at leading companies.

The others

– AstraZeneca: Shareholders dislodged CEO David Brennan after a fight over performance and strategy.

– Carrefour: At the world’s second-largest retail group, two resolutions granting stock options to new CEO Georges Plassat and to management and staff were blocked by shareholders.

– Citigroup: A majority of 55 percent (including pension fund CalPERS) voted against the proposal to award $14.9 mn to CEO Vikram Pandit, arguing it did not reflect performance. Governance guru Bob Monks described this vote as ’a milestone’.

– Pendragon: An impressive 67 percent of shareholders – led by advisory body the Association of British Insurers and shareholder action group PIRC – rejected the firm’s remuneration report.

– Royal Bank of Scotland: In one of the first cases, CEO Stephen Hester, brought in to turn around the Royal Bank of Scotland after its rescue by the UK government, chose to give up a £1 mn ($1.6 mn) bonus after an outcry from the press and public.

– Trinity Mirror: Sly Bailey announced she was stepping down after nearly 10 years as CEO, ahead of the AGM that saw 46 percent of shareholders vote against the company’s remuneration report. The share price had lost 90 percent of its value over a decade.

– UBS: Swiss pension fund foundation Ethos opposed the remuneration report and declared CEO Axel Weber’s $4.3 mn signing bonus ‘not justified’.

– William Hill: Ralph Topping, the chief executive of William Hill, was under pressure after nearly half the company’s shareholders (49.9 percent) voted against his £1.2 mn retention package. Chairman Gareth Davis ignored the protests.

– Xstrata: The pay report was opposed by 40 percent of shareholders. Pressure grew when a plan was announced for a (non-performance-related) retention bonus for CEO Mick Davis, in order to keep him on board for three years after the merger with Glencore.

Janet Dignan

Janet Dignan is a graduate of Otago University in New Zealand, where she read philosophy. From 1979 to1982 she was head of information at Linklaters, with responsibility for internal and external information resources for its offices in London, Hong...
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