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Shareholders revolt belatedly over excessive executive salaries and bonuses

The Sunday Business Post 

Sunday, May 24, 2009 By Ben Griffiths in London

Institutional investors are waging war on excessive executive remuneration in major British listed companies, following years of kowtowing to blue chip boardrooms.

Last week, oil giant Royal Dutch Shell experienced a humiliating defeat when 60 per cent of voters refused to accept its remuneration report at the annual shareholder meeting.

While votes on remuneration reports are not legally binding, they send a strong message to companies that shareholders are unhappy, often forcing directors to meet institutions to address their concerns.

Before the Shell meeting, Standard Life Investments’ head of corporate governance Guy Jubb said: ‘‘The resolution on the remuneration report is an advisory one – it is not about winning or losing the vote, but it is about listening to the strength and tone of the views expressed.”

According to corporate governance body Pensions Investment Research Consultants (PIRC), the upsurge in pressure on remuneration this year has been driven by three factors.

First, during a recession, shareholders are more focused on remuneration than when things are going well.

Second, some companies have failed to appreciate the mood among investors, continuing to award bonuses even when executives do not deserve them.

And third, shareholders have been under fire for not having their eye on the ball before the banking crisis blew up. A spokesman for the Association of British Insurers – which accounts for 20 per cent of investments on the London stock market – said: ‘‘The mood has clearly hardened, which was somewhat inevitable, given that we have moved suddenly from boom to bust.”

PIRC managing director Alan MacDougall said that remuneration committees needed to act responsibly in the challenging economic environment. He said that the votes against Shell and other companies should ‘‘disabuse of them the idea that shareholders will meekly accept whatever companies put in front of them.

‘‘There is clearly now a willingness to vote against management, which was lacking in the past, and this more assertive approach must be welcomed by all those who believe that good corporate governance requires engaged owners.”

A majority vote against remuneration at GlaxoSmith Kline in 2003 shocked the corporate world.

This year, besides Royal Dutch Shell, house builder Bellway Homes, Royal Bank of Scotland and Provident Financial have all lost votes on their remuneration reports.

Engineering group Amec would have lost had abstentions been included. Last Friday, HSBC saw a modest rebellion over its pay policy, with more than 11per cent of shareholders failing to back its remuneration report.

Another protest is expected at next month’s Lloyds annual meeting. Although UKFI – which manages taxpayer-held banking investments – has pledged to back the board, some shareholders believe the bank’s acquisition of HBOS was a mistake.


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