While the ‘shareholder spring’ of 2012 was mainly confined to financial services the current wave has impacted companies from a range of industries.
This month the tide might be turning for retail too, with concerns raised around the rewards packages of David Potts and Dave Lewis, despite the successful turnarounds they are driving at Morrisons and Tesco respectively.
In the last 18 years, executive pay has more than trebled. FTSE 100 chief executives now typically take home over £4m, regardless of performance.
Given that the average UK wage is under £30,000, it is not surprising that there has been a public backlash. The question is, why now?
A protracted period of economic and political uncertainty has brought executive pay to the forefront of public consciousness.
When trying to understand why leaders are rewarded so generously, we are confronted with opaque, convoluted pay structures.
Add to this the fact that this year two thirds of British companies face binding votes, where a remuneration policy requires the approval of more than 50% of shareholders, and we may just have a perfect storm.
“The compensation of retail leaders is already making the headlines with M&S and Mothercare also under recent scrutiny”
This could be exacerbated in retail, where frontline staff are paid significantly less than executives, if demands for pay ratios to be published are successful.
The Government is calling for greater transparency on executive pay, as complex formats can be perceived to disguise unjustified reward.
One suggestion is that long-term incentive plans (LTIPs) should be phased out in favour of restricted stock units (RSUs), which are not subject to complex performance metrics.
However, when proposed these have largely been voted down.
“Remuneration policies are about motivating management to deliver for shareholders … it’s all about balance”
Christine Cross, independent retail expert
In a retail context, we know how much of a retention tool these are, not to mention a healthy contribution to overall earnings for executives.
Christine Cross, retail veteran, plural non-executive director and remuneration committee chair, commented that “remuneration policies are about motivating management to deliver for shareholders… it’s all about balance”
Additionally, many companies are making changes to shareholding requirements.
This year, more than 50 companies have already increased the minimum number of shares that executive directors must hold, in accordance with the BlackRock guidelines on corporate governance.
Several others have enforced new conditions around the sale of shareholdings post retirement.
Despite the recent noise and movement around long-term incentives, the hot topic for 2017 appears to be explaining how annual bonuses are determined, while pensions look likely to move into the firing line over the next two years.
Simplicity and communication appear to be key. Listening to shareholders will be critical, as will clearly aligning pay and strategy.
As Cross puts it, “engagement with shareholders is critical and time needs to be spent face to face on this.”
The quality of leadership and the subsequent performance of businesses should not be affected by changes to pay.
“Pay should not be the overarching factor when hiring the best leader”
HR director, leading grocer
As headhunters, we believe that it is important to identify people who want to be part of a business rather than merely work for the highest bidder.
The HR director of a leading UK grocer agrees, commenting that, “pay should not be the overarching factor when hiring the best leader.”
Regardless, Cross believes that “boards need to rethink executive remuneration within their three-year policy guidelines, cognizant of shareholder feelings and public pressure to always do the right thing”.
“It’s a new world and compliance with past policy may have lost its relevance”
“It’s a new world and compliance with past policy may have lost its relevance,” she says.
Is this a revolt? We believe that reward is and always has been a contentious issue.
The noise surrounding the subject is amplified by the business performances in a year that is doubtless one of the toughest yet for retailers.