European investors balk at director pay

Protest vote: Jeroen van der Veer, Shell chief executive, at last month’s annual meeting. Investors rejected a remuneration report that was to award directors €4.2m in bonuses despite missed targets

Guy Jubb cannot remember when he last spoke out publicly at a company’s annual meeting – until this year, that is. Last month the head of corporate governance at Standard Life Investments travelled to The Hague from Edinburgh to look the board ofRoyal Dutch Shell “eyeball to eyeball” as he outlined his grievances at the oil group’s attitude to executive pay.

The anger evident at Shell’s meeting pointed to a new determination among shareholders across Europe to be seen to hold boards to account, clamp down on excesses and stave off the political backlash that many see brewing against corporate greed.

The mood was polite rather than ugly, with none of the violence that has marked demonstrations against bankers’ pay in the US, severance packages in France or the £700,000 ($1.15m, €810,000) a year pension awarded to Sir Fred Goodwin, former chief executive of the nationalised Royal Bank of Scotland.

But Mr Jubb’s protest at Shell, made alongside other big international investors such as the Ontario Teachers Pension Plan and Franklin Mutual of the US, was no less important in broadcasting that shareholders will no longer tolerate boards paying themselves what they wish. More than 59 per cent of Shell’s shareholders voted against the oil group’s remuneration report.

The trigger was the board’s decision to pay €4.2m ($6m, £3.6m) in bonuses to five senior directors even though the group had failed to meet set targets. Jeroen van der Veer, who steps down as chief executive this month, was awarded €1.35m from that discretionary pot, receiving a 58 per cent rise in his total pay for last year to €10.3m. Last year, the Anglo-Dutch group also broke with what shareholders view as best practice to pay three executives retention bonuses without performance hurdles. “The system is sick and needs mending,” Errol Keyner of VEB, the Dutch shareholders’ association, told Shell.

The vote against the remuneration report was non-binding but signalled an almost unprecedented level of dissatisfaction. The vote in favour of remuneration reports is usually well above 90 per cent. Only RBS’s remuneration report drew a higher No vote, of just over 80 per cent.

In the past, institutions have at times withheld their votes as a subtle indication of disapproval. Now, it is clear that those kid gloves have been flung aside. In the Shell vote, only about 2 per cent of investors abstained.

Voting down Shell’s pay plan sent a chastened company back to consult over revised proposals. 

The complete FT article