Increased Pressure on CEOs Amidst Volatile Economic Conditions

Recent events around the world highlight increasing skepticism and decreasing faith among shareholders on Key Management Personnel (KMP) remuneration practices. Although remuneration votes are advisory or non-binding in nature in the UK and the US, many investors consider a negative vote as an indication of a lack of faith in company performance and as an embarrassment.

Several leading institutional investors in British insurer Aviva expressed their dissatisfaction over the current pay plan in spite of chief executive Andrew Moss waiving his £46,000 salary increase; almost 60% of investors failed to endorse the remuneration report1. Investors said that the pay challenge was a sign of broader concerns with the organisation’s performance. Since Andrew Moss took up the post of CEO in 2007, Aviva’s shares have underperformed the FTSE 100 by 52 percentage points. Regardless of the non-binding nature of the voting process Andrew Moss resigned as CEO from Aviva.

Pressure from shareholders over pay in Aviva occurred in parallel with 31.5% of Barclay’s shareholders expressing their disapproval over CEO Bob Diamond’s pay package 2.

The CEO of newspaper publisher Trinity Mirror, Sly Bailey has agreed to stand down over growing speculation about her £1.7M pay and the under performance of the company during her time at the helm (90% of its stock price fell over the last five years)3.

In the light of the current nature (non-binding) of remuneration voting, the British government is considering providing shareholders with “binding” votes over executive pay to encourage greater transparency (see EA Newsletter April 2012).

European based companies too, appear to be coming under shareholder pressure over pay and performance with Anglo-Swiss mining company Xstrata also receiving low shareholder approval for its remuneration report.

Meanwhile across the Atlantic a growing list of US shareholders are also voting down pay policies. For example, at Citigroup (55% of shareholders did not support its pay plans, in particular CEO Vikram Pandit’s US$15M compensation plan) and NYSE’s Euronext (43% of shareholders did not support its pay plans). 

An increasingly important question arising is: Is the shareholder’s say on executive remuneration, along with challenging global economic conditions, placing increased pressure on CEOs to deliver or quit?

1. Forbes Moss Aviva
2. Sydney Morning Herald Diamond Barclay
3. The Guardian Bailey Trinity Mirror

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