Who will take a stand on executive pay?

FTSE 100 directors saw their incomes rise by 21% last year to an average of nearly £3m each. It’s time ordinary investors had a champion to take a stand on these crazy pay packages.

150609-sorrell
Martin Sorrell: does £43m a year represent good value?

Which would you rather have for £43m a year: one Martin Sorrell, CEO of advertising group WPP, or 650 British MPs? That's the question Kate Burgess asks in the FT today.

I suspect that most business people would rush for the Sorrell option, even if they baulk a little at the fact that his package includes £274,000 for his wife's air tickets. But it is still a question that draws attention, yet again, to the bonkers packages large listed firms offer their management.

More examples? How about the £11m bonus being paid to Harriet Green of Thomas Cook (despite her firm's horrible, horrible mishandling of the deaths of two small children in one of their villa holidays in Corfu). Or perhaps the £8m pay check going to relatively inexperienced Burberry chief exec Christopher Bailey.

Add it all up, and FTSE 100 directors saw their incomes rise by 21% last year to an average of nearly £3m each with the big payments very skewed towards the top management. It is all, as Anthony Hilton puts it in the Evening Standard, "excessive, unnecessary and undeserved".

There has been movement here recently. Several big shareholders say they are planning to vote against Sorrell's pay this year for the first time (ordinary investors could have made their feelings known at WPPvoteNO.org, but it is too late now I'm afraid). Fidelity has started voting against remuneration reports at meetings unless long term incentive plans run for five years rather than three.

And a few weeks ago, Legal & General Investment Management called for executive salaries to either be capped or to rise in line with those of the general workforce although this is useless if the variable part just keeps going up and up.

A report from the High Pay Centre (funded by Lord Sainsbury) has suggested that the long-term incentive plans (LTIPs) be scrapped outright, and Daniel Godfrey of the Investment Association has started on a review of how executive pay structures might work better.

But shareholders have to do more to get their voices heard, and the fund management industry has to be forced to do better. A lot of their foot dragging is down to the fact that asset managers are just as grossly overpaid as FTSE 100 CEOs.

Who might like to get started on this forcing? How about Lesley Williams? She is to be the new head of the National Association of Pension Funds. Who better to take a stand on the matter than the person seemingly in charge of making sure the UK's 1,300 pension schemes look after the interests of ordinary investors first?

And who better to point out that looking after ordinary investors means taking a very firm stand on executive pay and the skewed incentives it creates? You can read our previous writings on those incentives here and here, for example.

Recommended

The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Shaniel Ramjee: tech stocks, China and Japan – where to find the best returns
Investment strategy

Shaniel Ramjee: tech stocks, China and Japan – where to find the best returns

Merryn talks to Shaniel Ramjee of Pictet Asset Management about where to find the best returns in global markets right now – the continued growth of t…
20 Oct 2020
Cash rich and bored? Be careful what you do with your money
Investment strategy

Cash rich and bored? Be careful what you do with your money

As the pandemic has left many people with more time on their hands but little opportunity to spend, they have been speculating in the markets. But don…
19 Oct 2020
Will fintech change the face of banking?
Alternative finance

Will fintech change the face of banking?

Fancy new apps have become popular for everything from making a payment to buying insurance and shares. Should the big banks be worried? Simon Wilson …
17 Oct 2020

Most Popular

The Bank of England should create a "Bitpound" digital currency and take the world by storm
Bitcoin

The Bank of England should create a "Bitpound" digital currency and take the world by storm

The Bank of England could win the race to create a respectable digital currency if it moves quickly, says Matthew Lynn.
18 Oct 2020
Negative interest rates and the end of free bank accounts
Bank accounts

Negative interest rates and the end of free bank accounts

Negative interest rates are likely to mean the introduction of fees for current accounts and other banking products. But that might make the UK bankin…
19 Oct 2020
What would negative interest rates mean for your money?
UK Economy

What would negative interest rates mean for your money?

There has been much talk of the Bank of England introducing negative interest rates. John Stepek explains why they might do that, and what it would me…
15 Oct 2020