SIMON ENGLISH: Boardroom pay ‘rebels’ should be pelted with rotten fruit

No one who remotely matters cares less about spiralling executive pay. That’s the only conclusion you can really reach from investor votes on large company remuneration reports.

In theory, if you trust the narrative coming from the City and aped by commentators, there’s something close to a war on. If so, it’s the most one-sided in history, a routine nine-nil drubbing by Manchester City of Orpington Stanley’s third team. And Orpington are lucky to get nil.

Shareholders are, like Lord Mandelson, “intensely relaxed about people getting filthy rich”, even if they sometimes pretend otherwise. The main reason for this is obvious if often overlooked: fund managers are themselves very well-paid executives. They have zero personal interest in executive pay going down.

Proxy Insight produces an excellent FTSE 350 Pay Tracker which covers investor votes on what companies prefer to call “remuneration”, perhaps because it sounds less tacky. The figures are something close to comic. Votes in favour of pay policies at WH Smith? 99.66%. At Bunzl 96.23%. There was a bit of a backlash at Barclays, rocked by getting only 95.96%.

Saddam Hussein didn’t used to get this many votes, though things admittedly turned out badly for him in the end. The chances of a similar revolt in the City are plainly zero.

Proxy has compiled a list of the big investors most likely to vote against executive pay. Full credit to Aviva for only approving remuneration reports 57% of the time (see table).

The bankers at Lazard only give the nod “yes” eight times out of 10, which in the City marks them out as a rebellious bunch of Left-wing radicals.

Nick Dawson at Proxy tells me that some investors are treating the pay issue much more seriously than they have in the past. Playtech saw a near-60% vote against its pay report lately. Cineworld got whacked with a 34% negative vote.

Still, overall the picture is unchanged. In 2016 pay policies were backed by 94.5% of investors. This year, the figure was 93.1% Last year, the average pay rise was 2%. In the boardroom, it was 32%. Getting vexed about this is more than mere jealousy; it goes to the heart of how big companies are run. If bonus pay is so large that, say, three “good” years makes you a multi-multi-millionaire, the temptation to ramp up earnings per share by any means necessary is huge. What happens in the longer-term, well, you’ll be gone and so will the investors.

It’s quite hard to escape the conclusion that official reports into executive pay are mere fig-leaves, an attempt to give the impression that something is being done, before the City goes back to its 95% in favour votes.

AJ Bell list 24 inquiries into corporate governance since 1992. These included the Greenbury report of 1995, which was specifically about directors’ pay, the 2001 Myners report about the role of large investors and the 2011 Hutton Review — which also looked into directors’ remuneration.

The reports reached noble if predictable conclusions and the press got to carp about whether the authors of the investigations weren’t themselves quite rich (yes, is the answer).

Then nothing happened. Thrice. One small leap forward would be if small investors, who typically have their shares in nominee accounts held by the likes of Hargreaves Lansdown, found it easier to make their voice heard.

At the moment, these retail investors tend not to get the chance to vote, or have to specifically ask for the right to do so. A change to the rules and a government nudge to Hargreaves et al would be good. In the meantime, I think the most useful device has to be mockery.

In a democratic election, one side getting 60% of the vote is rare — it’s an absolute landslide. The chances of getting 90% of the population to agree on anything is remote. So every time there’s a 95% vote in favour of a company’s executive pay scheme, we need to make fun of the voters.

Anyone pretending that there’s an actual clampdown on boardroom pay needs to be similarly pelted with rotten fruit.