23rd November 2012
“Mindful Money’s piece on our report ‘The Missing Link’ argues that our chart on voting data undermines our case that the ‘Shareholder Spring’ was not all it seemed. It is worth clarifying that the purpose of the chart was not to highlight low overall levels of dissent but to assess consistency of voting patterns: why were some companies targeted and not others? Was there consensus among the institutional investor community about what constituted unacceptable remuneration practice? Is there an obvious pattern or story to be told which unites the victims of the ‘Shareholder Spring’?
As such, in our selection of companies for analysis we deliberately chose to focus on those which had suffered significant shareholder rebellions. The chart is therefore not a comprehensive analysis of all companies that breached our ‘triggers’ on poor remuneration practice. We are aware of at least 18 FTSE companies whose remuneration reports breached our triggers, and a further 11 who breached the NAPF’s voting guidelines. Needless to say, not all of these companies suffered shareholder rebellions.
Almost by definition, the chart’s focus on controversial votes means there is a large amount of red to be seen. Having said that, I’ve just totted up the percentages of red, green and yellow for all votes disclosed, and the red only accounts for 59% – not exactly overwhelming. It’s also worth noting that the two companies we selected solely because they breached our triggers (rather than from a desire to include all the season’s controversial votes) – Rolls Royce and BP – are both bathed in a sea of green.
But the story our report seeks to tell lies not so much in the overall number of votes for or against, but the variability across investors and companies. Yes, some fund managers took a laudably consistent and robust line on poor remuneration practice at the companies we analysed: F&C, State Street and the Co-operative Asset Management, to name a few. So why did BlackRock – the world’s largest asset manager, with $3.6trn under management – think that only one of those companies (Cairn Energy) merited a vote against?
And if all but two of the managers for whom we have data thought that Martin Sorrell’s maximum bonus of 500% of base salary was unacceptable, why did only three of them vote against BP’s remuneration report, which gave Bob Dudley a maximum 923% of base salary? Similarly, if only two managers thought that Cairn Energy’s one-off payments to Sir Bill Gammell were acceptable, why did all but one wave through Rolls Royce’s golden hello for John Russell? Of course, voting decisions must be taken on a case by case basis. But in the absence of explanations for voting decisions (which most fund managers do not provide, at least not for votes in favour) it’s difficult to discern a pattern that explains why some companies suffered shareholders’ wrath and others did not.
I’m afraid I can’t agree with Mindful Money’s conclusion that the answer lies in poor performance. In the case of WPP versus BP, a performance comparison would clearly have favoured WPP. As our report notes, some researchers have suggested that low or falling share price (as distinct from other measures of profitability) could be the common factor linking companies who suffered defeats. But this is scarcely more encouraging than the randomness our chart depicts: as the Kay Review of UK Equity Markets has eloquently highlighted, making decisions based on short-term share price movements is unlikely to reliably further the long-term financial interests of beneficiaries such as pension savers.
FairPensions’ work on executive pay is grounded firmly in the belief that good corporate governance delivers long-term benefits for company performance and thus for savers. Our four ‘triggers’ were developed with investors and governance experts with this in mind. We have never advocated blanket opposition to pay that is ‘too high’: we want to see institutional investors making intelligent, consistent and robust use of their shareholder rights. Of course, it would be churlish to deny that 2012 yielded some encouraging signs in this respect. But, as our analysis shows, the idea that it represented a seismic shift in shareholder expectations has been hugely overstated. Good practice should be celebrated, but there is certainly no room for complacency about the achievements of the ‘Shareholder Spring’.”