Investors staging record numbers of pay revolts

Shareholders of 15 FTSE 100 firms have protested already this year – up from seven in 2010

Shareholder revolts over pay have hit record levels this year as investors, stung by criticism of their inertia before the financial crisis, seek to rein in excessive rewards at Britain's top companies.

With more than two months left of 2011, 15 companies in the FTSE 100 have suffered investor votes of 20 per cent or more opposing remuneration reports or deliberately abstaining.

The latest to face shareholder ire over pay was Diageo. The drinks giant was hit by a rebellion from 20 per cent of shareholders at last week's annual general meeting. Other companies in the list of revolts, compiled by corporate governance consultant Pirc, include HSBC, BP, Standard Life and National Grid.

Only seven of Britain's top 100 companies suffered equivalent rebellions in all of 2010. The previous top year for investor unrest was 2009 when shareholders registered protests against 10 companies. The biggest revolt so far this year was at WPP, the marketing giant, whose 42 per cent rebellion was entirely made up of votes against with no abstentions. XStrata was the next biggest with 39 per cent of votes withholding support. The mining company's remuneration report has attracted protest votes in each of the last three years.

George Dallas, director of corporate governance at F&C Asset Management, says increased activism on pay is a response to the Stewardship Code, which was introduced last year. The code requires institutional investors to monitor the companies they hold shares in and tells them to act together when necessary to hold boards to account.

He said: "The Stewardship Code was a signal to investors they needed to raise their game. In many cases we are now concerned about the pay packages we are asked to approve, whether that is the quantum of pay, performance conditions or magnitude of pay increases."

Institutional investors were attacked during the financial crisis for rubber stamping pay deals that appeared to encourage risk taking at banks. The crisis highlighted a more general lack of oversight by big shareholders of all companies on pay and other issues. David Ellis, at Pirc, said shareholders were sending a warning to boards they were prepared to intervene on pay, as well as other decisions, rather than reserving protests for particularly egregious actions. He said: "Shareholders are prepared to challenge what's going on."

Business Secretary, Vince Cable, said last month he intended to clamp down on excessive pay at the top of Britain's companies. His proposals include making shareholder votes binding and forcing companies to justify bonuses.

Mr Dallas said the principle that companies should "comply or explain" was under threat and shareholders needed to show they were being tough on pay to head off political interference. He said: "If regulators remain uncomfortable with investor involvement, we could face cumbersome regulations."

Other FTSE 100 companies hit by revolts of 20 per cent or more this year were Hargreaves Lansdown, Rio Tinto, Bunzl, Reckitt Benckiser, Standard Chartered, Capital Shopping Centres, Eurasian Natural Resources and Icap.

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