Revolt: Join in the shareholder spring
The tide is turning on fat-cat pay. Julian Knight and Chiara Cavaglieri show how UK investors can take a more active role in companies
Julian Knight is the Money and Property editor for the Independent on Sunday and interim Economics Correspondent, previously he was the personal finance reporter for BBC News and has published seven books.
Sunday 13 May 2012
It may not be the storming of the Winter Palace but there is a whiff of revolution in the air. Boards of some of the UK's biggest companies, used to having their bumper bonuses and pay awards simply nodded through at their company's annual meetings, have been rocked by shareholder revolts. The bosses of failing companies, and even some seemingly well-run companies, are being called to task about the pay they award themselves.
Andrew Moss, the Aviva chief, quit last week as a result of one of these revolts and the bosses at William Hill, Xstrata, Premier Foods and mighty Barclays bank have faced the ire of shareholders.
Add to this the Government's announcement that it will legislate to increase shareholder rights, particularly the right to block rather than simply advise on senior executive pay rises, and the message seems loud and clear: the high-pay merry-go-round has to slow, if not stop.
In a movement dubbed the "shareholder spring" a new sense of activism is at large. So how can you as a shareholder get involved and find out what you need to know about the companies you are effectively an owner of, either directly or through your investment or pension fund?
As an investor you can and should voice your opinions by going to the annual meeting and writing to the board of directors. But a lone voice can all too often be lost. You have to combine with like-minded shareholders to have even the slightest chance of bringing about change. Campaigning organisation ShareSoc (the UK Individual Shareholders Society), which was set up to support individual shareholders, can help.
"First of all we educate people and tell them that they ought to vote and how they can vote," says Roger Lawson, the chairman of ShareSoc. "We also represent their interests. If they have a particular problem with a particular company we will publicise them, advise how to tackle problems and sometimes run campaigns.
"What we are seeing is both a grass-roots and institutional concern over pay in particular; it's related to austerity and the Government's consultation over high executive pay."
A recent Accountability in Business report by The Share Centre bears out Mr Lawson's line that we are seeing an alignment of angry private investors with the major institutional owners, who have the shareholding muscle to make a difference. The study found that 95 per cent of institutional investors think executive pay has become too high and 83 per cent are in favour of clawback arrangements.
The Government is working on legislation that ensures shareholders have to approve pay levels. But until then, although companies hold annual meetings where investors must be allowed to vote on pay deals, there is nothing forcing them to take any notice; at William Hill, chairman Gareth Davis has already said it has no intention of changing its remuneration report.
In many cases, you rely on fund managers to use their votes, but research from shareholder advisory group Pensions Investment Research Consultants has found only 15 per cent of fund managers tell their investors how they use their vote.
A new online campaign Fairpensions is hoping to change that by urging pensions and ISA investors to demand that their fund managers take more responsibility. The charity has launched a Your Say on High Pay web tool (yoursayonpay.org.uk), which generates an automatic draft email to managers calling on them to vote against excessive pay and rewards.
"Millions of people have a stake in Britain's highest-paying companies through their pension savings but, all too often, they lack the means to have a say on the way that the companies in which they invest are run," says Matthew Butcher from FairPensions.
Since the launch of its high pay campaign tool last month Mr Butcher says pension funds have received emails from pension savers jumping at the opportunity to influence the way companies reward executives. Investors have no obligation to disclose how they voted on controversial issues such as executive pay, which is why FairPensions is calling for mandatory voting disclosure.
"If we are to turn this 'shareholder spring' into long-lasting change we must have greater transparency between investors and those whose money they manage," says Mr Butcher.
Until then, being an active shareholder will require you do your own digging. There are tools including websites such as investegate.co.uk and digitallook.com. Companies also publish information in their annual report and accounts. Sales and profits figures will give you an idea of the business's health and you should be able to compare how much money a company has made over a set period of time with the dividends it has paid out to get an idea of its dividend policy.
You should also find out how many shares individual directors have in the company and keep an eye on when they buy or sell. Executives who have a big stake in the business are a good sign and if they start selling shares it could be cause for concern.
Equally you should do your research when picking fund managers. "The more enlightened fund management groups employ shareholder engagement teams to act for all assets under management," says Robin Keyte from Taunton-based independent financial adviser Keyte Financial Planners.
Mr Keyte says fund management groups adopting this approach are generally signed up to the EuroSIF Transparency Guidelines or signatories to the UN Principles for Responsible Investing, so look out for these labels. "Furthermore this does not just relate to fat-cat pay, but can extend to responsible supply chain (including barring child labour) and requiring firms to have a policy which they review on greenhouse gas emissions."
This could well prove to be the year when share ownership developed a social conscience.
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