Investors '˜ready for a fight' over executive pay

Highly-paid bosses should brace for more investor rebellions over pay as shareholders gear up for a scrap, a fund manager has warned.

SVM Asset Management's Colin McLean said the shareholder revolt is unlikely to 'fizzle out'. Picture: Steven Scott Taylor

Colin McLean, managing director of Edinburgh-based SVM Asset Management, said investor anger over hefty financial rewards will come to a head this year as nearly half of FTSE 100 firms face binding votes on pay.

Executive pay levels have trebled since the millennium despite evidence suggesting there is no strong link between company performance and large executive salary packages, McLean added.

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“2017 could finally be a year for change in executive pay, with both investors and politicians ready for a fight,” he said.

“Some long-term incentives were put in place before the 2012 reforms, with binding shareholder votes only required every three years.

“This year almost half the FTSE 100 face binding votes on pay, and we will see changes bite. The shareholder revolt seems less likely to fizzle out this time.”

It comes as David Cumming, head of equities at Standard Life, told the BBC his firm “could not justify” executive pay going any higher.

“We continue to see too many proposals that would bring a substantial increase (in pay), and we have to signal that we are not happy with that.”

Pay among FTSE 100 chief executives has risen from an average of £1 million in 1998 to £4.3m in 2015, far outstripping the growth in average earnings.

A group of fund managers are understood to have agreed to work together to tackle excessive executive pay during a meeting last month. Aberdeen Asset Management, Investec Asset Management, Standard Life Investments and M&G Investments are said to be among the 13 firms joining forces to address the issue.

Prime Minister Theresa May outlined plans to shake-up corporate pay in a green paper last November. Among the changes, companies will have to publish pay ratios that show the difference in earning between the chief executive and average employee.

McLean said “poorly thought out rewards” had the potential to “destroy corporate value”.

He added: “Most incentive schemes remain relatively short term, with poor linkage to shareholders’ long term interests or sustainable returns.”

Last year saw a string of shareholder revolts at AGMs as investors took umbrage with remuneration awards dolled out to top bosses – with firms such as Anglo American and BP facing protest votes.

Imperial Brands, the company behind Davidoff and Lambert & Butler cigarettes, last month moved to stub out a potential shareholder rebellion by withdrawing plans for a bumper pay rise for chief executive Alison Cooper.

Fund management giant BlackRock has also written to major listed firms warning them over high payouts.