Executive pay schemes bypass shareholders

According to research by the Co-operative Insurance Society (CIS), one of the most active institutional investors, remuneration committees are becoming increasingly innovative when it comes to maintaining executive pay growth, often regardless of performance.

While share-incentive packages require prior approval by investors, CIS said many companies now make one-off payments to executives, which are listed only in the small print of remuneration reports, or refuse to disclose precise performance targets because of "commercial sensitivity".

The group said payments such as Lord Hollick's £250,000 for handing over to his successor at UBM were becoming commonplace, while companies that have already overpaid their executives under approved share-incentive schemes, such as Greene King, had invented secondary schemes to allow their directors to build up even more options.

Shareholders' only chance to oppose these payments is to vote against the entire remuneration report - a move that rarely receives the necessary critical mass of support.

CIS said it rejected 304 of the 711 remuneration reports that it voted upon last year - of which more than 10 per cent were on the grounds of special, or ex-gratia, payments to directors.

The most common reason for rejecting remuneration reports - accounting for 27 per cent of "no" votes - was that directors' performance targets were not sufficiently challenging.