Most of us probably thought we would never see it happen. For more than a decade, executive pay has climbed, even while returns to shareholders dwindled.
Now, finally, the patience of shareholders seems to have cracked. At Barclays, easyJet, Trinity Mirror, Credit Suisse and Citigroup, shareholders have lodged significant protest votes against the pay of the people running the businesses. When a fire gets started, there are two things you can do. Snuff it out, or throw some petrol on top of it. With this revolt, the government should be coming along with some jerrycans marked flammable.
It has been impossible to miss the series of revolts over CEO pay. At Barclays, Bob Diamond saw a quarter of his shareholders vote against his package. At easyJet, founder Sir Stelios Haji-Ioannou has been leading a campaign against the payments made to the current executives. Sly Bailey at Trinity Mirror has faced intense criticism over the size of her pay at the ailing newspaper group.
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In America, shareholders actually managed to defeat the proposed $15m pay package for Citigroup boss Vikram Pandit. In Switzerland hardly a place anyone thinks of as a hotbed of radicalism a third of shareholders voted against the pay packages proposed for Credit Suisse's top executives. One revolt might be chance and two a coincidence, but more looks like the start of a trend.
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There is plenty for shareholders to be upset about. Take Britain. If you look at the whole decade from 2000-2010, the pay of the chief executives of the 350 largest quoted companies went up by 108%, according to a recent study by the consultants IDS. The value of those firms over the same period went up by just 8%. So the executives were rewarded ten times more than the shareholders.
At the top of the scale, the problem is even worse. FTSE bosses now routinely earn several million a year in pay and bonuses. A decade ago, a million pound pay package was still enough to make headlines. Yet over the whole of that decade the FTSE has gone precisely nowhere. It is worth less today than it was in 1999. So while the bosses made millions, the people they are supposedly working for made nothing.
No one objects to entrepreneurs making a fortune and the truly exceptional should be well rewarded. But most chief executives are simply competent individuals who could be fairly easily replaced. There is little reason to pay them more than a million a year and perhaps half that. The truth is, shareholders have been fleeced. The actual owners of the businesses have been paying vast sums for mediocre performance. The revolts of the past few weeks are the first sign that plenty of shareholders have had enough and are finally prepared to do something about it.
The trouble is, a few rebellions can be easily brushed aside. To keep this going, the government should step in and encourage more. Here are four good places to start.
First, make the pension funds that own the bulk of the British stockmarket consult their policyholders on pay. Right now, most fund managers vote as they please and in reality many of them are part of the same racket. Any pension fund holder should get a questionnaire each year asking them how they would like the shares held on their behalf to be voted on remuneration issues. The same goes for shares held in unit trusts. Most ordinary people would vote against the more outrageous pay awards.
Next, use the power of the state's own funds. Local authority pension schemes have billions tied up in the British stockmarket. Why not make it a rule that they will routinely vote against the re-election of any CEO who earns more than £2m a year, unless an exceptional justification for the award can be made? Again, that would add a huge number of votes to the rebellions.
Thirdly, how about separating out the vote on board pay? Right now, it takes place as part of a dull-as-ditchwater AGM. Make it a separate annual meeting, preferably held online so that shareholders don't have to gather in the basement of a London hotel to register their protest. That would make revolts a lot easier to stage.
Fourth, why not raise the bar? Change the law so that, to be passed, a pay policy needs to have the approval of 60%of the shareholders. That would reduce the number of votes that had to be lodged against a pay package to get it overturned.
Apart from a few people who are lucky enough to have their fingers in the pie, the massive escalation in executive pay hasn't helped anyone. Eventually shareholders are going to become fed up with a stockmarket that rewards the people who manage companies but not the people who own them. Any of those four changes would help defeat more over-the-top pay packages. All four of them might just bring the pay racket to an end.
