Have shareholders any real leverage on executive pay?

Two articles, published in the FT within 24 hours, with polarised messaging!

The first written by Harriet Agnew from New York includes a quote from LGIM’s Angeli Benham.

“Most companies don’t act on the remuneration feedback we give them. For example, they write to us saying they’re going to increase the chief executive’s bonus from 150 per cent of salary to 200 per cent of salary. Our feedback is to say LGIM cannot support that, but they do it anyway.

Often we’re an outlier among shareholders with our stricter stance on bonus increases, because we do not support them. Companies tend to do what’s right for management rather than listening to us a shareholder.”

The second article quotes a PWC report. The consultancy tells us.

Chief executive pay in the FTSE 100 has fallen by nearly a tenth this year, as companies reined in executive rewards under shareholder pressure during the pandemic.

The PWC research suggests that the UK may be acting unilaterally, with the awful prospect of fat cats jetting to the States for proper pay and rations

Executives have warned that the trend towards lower pay could harm the ability of listed companies to recruit the most talented people, given higher rewards among privately owned businesses and those offered by companies in overseas markets such as the US.

The reader is left to guess whether PWC is guilty of green washing – in which case the Investment Association and Institutional Shareholder Services , are also in on the act. Alternatively, has LGIM – a direct asset owner, got a truer view into what is going on with executive pay?

As often is the case, the news that we are fed is inconsistent and in this case contradictory. I still see six-litre Mercedes’ parked outside LGIM and Schroder’s offices in Moorgate, disgorging C-suite execs to explain the company’s position on ESG and I tend to side with their ESG teams if they are flagging double standards – I speak as an investor and not as a consultant.

My worry with PWC’s report is that it conflates the short-term impact of Covid, with the more fundamental issues of social equality and good governance , addressed by ESG

Median total remuneration for FTSE 100 chief executives dropped 9 per cent in the 2021 financial year to £2.9m. Almost a third of CEOs received no bonus, either as a result of not meeting targets, or the bonus being cancelled or waived.

This was twice the number that did not get a bonus in 2020. The cancelling of bonuses meant that overall pay packets fell last year. Nearly half of chief executives — 45 per cent — faced a salary freeze, as their companies emerged from the worst months of the pandemic — albeit fewer than the previous year, when 52 per cent of salaries were frozen.

Whatever the reason for LGIM and PWC’s different views on the impact of ESG on executive pay, there is little clarity in what is really going on. The juxtaposition of these two articles may catch the eye of an FT editor and I am tempted to write for further explanation!

Let’s hope that as time shows  the existential threat’s from Climate not Covid, we’ll see executive pay linked to corporate promises on sustainability  .

PWC reports with approval

Nearly one-third of FTSE 100 companies incorporated an ESG measure into the assessment of their 2021 long-term incentive plans.

I suspect to LGIM (and to me) that is two thirds too few!

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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