Shareholders powers are not tackling excessive executive pay issues

Measures that were implemented to give shareholders the powers to veto excessive executive pay packages have failed according to new research from a think tank.

Rules were put in place back in 2013, which meant all listed firms have had to give shareholders a binding vote on top boss pay at least once every three years in a bid to make companies more accountable.

However, the High Pay Centre (HPC) has claimed in a report examining the voting patterns of shareholders at FTSE 100 companies between 2014 and 2018 that the ‘say on pay’ measures have failed with every single vote approved during that period.

The research looked at more than 700 pay-related votes on at the annual general meetings of FTSE 100 firms.

In votes on remuneration reports, the average level of shareholder dissent over the period was just 9.3 per cent, reaching no higher than 10.6 per cent in a single year (2016).

Only 12.4 per cent of votes attracted ‘significant’ unhappiness (64 votes out of 514) and just six votes on remuneration reports were defeated over the period. These were Burberry (2014), Intertek (2015), BP (2016), Smith & Nephew (2016), Pearson (2017) and Royal Mail (2018).

The HPC research also states that 14 companies experienced significant dissent more than once over the period, but did not take action to address this, which suggests that shareholder pressure does not prompt companies to change their approach to top pay.

These were BP, Burberry, Carnival, Experian, GlaxoSmithKline, Old Mutual, Pearson, Reckitt Benckiser, Sky, WM Morrison, Ashtead (three times), Astra Zeneca (three times) and WPP (five times).

The findings of the report come as the average levels of CEO pay reached a high of £3.9 million in 2017. The figure is approximately 137 times the annual salary of a typical worker in the UK.

The report states: “The UK’s system of shareholder-policed corporate governance places responsibility for tackling excessive executive pay squarely with shareholders, through their private engagements with investee companies and their votes at AGMs.

“Our analysis shows conclusively that, although executive pay levels have remained at provocatively high levels, shareholder pressure has been virtually negligible with most pay packages and the policies that result in them waved through without serious opposition. In this respect, shareholder say on pay has failed.”