How investors can fight back against corporate excess

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The Independent Online

Watching the value of your shares plummet in recent years has not been pleasant, and so hearing that the directors of the company in which you invest have earned multimillion pound bonuses is galling.

Watching the value of your shares plummet in recent years has not been pleasant, and so hearing that the directors of the company in which you invest have earned multimillion pound bonuses is galling.

Britain's businesses are proving to be rife with fat cats, enjoying ever larger pay packets and bonus schemes. In the past few weeks directors at Corus, Telewest, Shell, Schroders, Reed Elsevier, Reuters and Granada have enraged their shareholders with huge pay awards.

The directors of a company are, however, ultimately responsible to their shareholders, who are not powerless and can make their voice heard. That is, of course, if you are a nominated shareholder. The majority of private investors hold shares bought through a stockbroker in a nominee account. This makes it easy to trade and administer, but it means you do not have any voting rights.

Toby Keynes, the national secretary of the UK Shareholders' Association (UKSA), which lobbies for the rights of private investors, says: "Most people do not realise until it is too late that they have given away their rights to vote on company issues. If you are in a nominee account it means you do not get any shareholder circulars, you do not get the company's accounts, you are not invited to the annual general meeting, you cannot vote." Ask your broker what type of share account you have. It can be changed so that you hold the share certificate, but you may be charged a fee.

Institutional shareholders have the luxury of in-depth research on company behaviour by organisations such as the Association of British Insurers, the National Association of Pension Funds, and Pension and Investment Research Consultants. These groups help and advise institutional investors on which way to vote on resolutions.

The private investor will have to rely on their own detective work, and investors should monitor news from the company and how it has performed. The first port of call is the company's annual report and accounts.

Sarah Wilson, at the shareholder activism group Manifest, warns investors to look past the chairman's statement that often glosses over performance failures. Annual reports now contain the details of the directors' remuneration packages, including their basic salary, their bonuses, other benefits such as housing and medical allowances, their share options and their pension entitlement. The reports will also show information on what performance targets the directors should meet before their bonuses are awarded.

Shareholders can then compare this with the total shareholder return they have received that year, which is a figure compiled from the growth in the company's share price and the dividend paid.

Manifest researches companies and benchmarks their corporate governance against the code of practice they should adhere to. You can buy Manifest's research on individual companies, which gives an analysis of how executive pay compares with performance, for £100 a time.

If you have a grievance, you can write directly to the company to air your concerns. Most FTSE 100 companies have a dedicated team of people to deal with investor questions. The company's telephone switchboard or website should direct you to the investor relations department, where someone will listen to your concerns. Be aware, however, that many companies are only interested in keeping their largest shareholders happy and the explanation of pay awards you receive will be highly partisan.

The company's AGM is the yearly stand-off between shareholders and the board, where investors are invited to raise issues with the board. If you hold a share certificate, even if it is for only one share in the company, you should be on the share register and will be sent an invitation to the AGM. Anyone can ask a question at the meeting. You will also be sent voting papers before the meeting, which now carry a vote on the pay package of directors. This is, however, only an advisory vote – the company is not compelled to act on it.

If standing up in a meeting of hundreds of people is a daunting prospect, there are ways of finding support for your cause. The UKSA offers a service to members looking for support before an AGM. It will forward a message to its members to find other shareholders with similar grievances.

Mr Keynes says: "We would encourage everyone to go to the AGM if they can. It is the one time that directors have to face you, and even if all the resolutions are passed, you can still make directors aware of their responsibilities. If they are too greedy and incompetent, and still demand rewards for poor performance, they should know there is a price to pay."

There are also investment clubs, which are more easily accessible with the advent of the internet, where private investors can pool their concerns to strengthen their voice.

Manifest advises shareholders to do their research well before the AGM and send in their votes early. If a company becomes aware in advance of the meeting that a substantial proportion of its shareholders is voting against a resolution, the chance of a rethink is more likely. Prudential, the insurance company, pulled a multimillion-pound bonus scheme for its chief executive, Jonathan Bloomer, after a cool reception from shareholders.

Even if you do not hold shares in a company directly, many people hold shares through Isas, unit trusts, investment trusts and pension funds. In this case, investors have few means of making themselves heard. Writing to your fund manager is the only means of raising an issue.

It is not, of course, just shareholders whose blood may boil at executive pay packages. Employees of companies run by fat cats also have every right to protest. Trade unions keep a keen eye on executive pay and the Trades Union Congress contacts the institutional shareholder lobbyist groups to follow their voting advice.

How to spot a fat cat

* Keep up to date with company news. Institutional lobby groups will often make public their grievances

* Check annual report and accounts for details of directors' pay and benefits – watch out for the size of their pension funds and pay-off entitlements

* Look at performance targets and bonus awards compared with the return you made as a shareholder

* Join an investment club for your holdings to gather support for your concerns

* You can become a member of a shareholder organisation that will inform you of company issues as they come up

* Write to complain to the company directly

*Write to Patricia Hewitt, the Secretary of State for the Department of Trade and Industry, voicing your concerns

* Make sure you send your vote in early

* Attend the Annual General Meeting to ensure your point is heard

* Demand a follow-up if the explanation is unsatisfactory

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