NEDs hold whip hand in executive pay stakes

April 27, 2021 • 2 minute read

The white flag has been raised, they’re under starters order and they’re off!

The annual general meeting (AGM) season is under way and this year companies who have taken government cash during the pandemic are most likely to be in the frame for the Great Executive Pay Stakes.

Already there have been some early fallers.

Almost 40% of shareholders in Foxtons, the London estate agency, last week gave the board what The Times called ‘a bloody nose’ by opposing its remuneration report, which awarded chief executive Nic Budden almost £1million in bonuses despite taking almost £7million in government support.

There was a similar shareholder revolt at Domino’s Pizza on the same day.

Others facing pay protests include British American Tobacco and even the member owned Co-op.

But way out in front with an unassailable lead is of course Bet 365 boss Denise Coates, who last year paid herself £469m.

“It’s her company, she can do what she likes,” I hear you say.

Well, yes, up to a point. What Coates’ eye-watering pay package raises is the question of quantum.

As the FT’s respected Lex column put it recently: “Quantum (of pay) is a key test for the public of whether the ethical claims of big business – trumpeted by the ESG (environmental, social and governance) movement – are credible.”

In the UK, the median pay of FTSE 350 chief executives is 53 times that of the median employee. In the US, the ratio is 320 times – and rising inexorably.

(In the late 1980s US CEOs earned around 60 times the typical worker, in the 1960s, it was nearer 20 times as much.)

What is to be done? Well, more transparency alone clearly isn’t enough. Greater disclosure about how executive pay is benchmarked has only led to remuneration committee reports getting longer and more impenetrable.

Regular and meaningful engagement by shareholders remains imperative. As client money pours into cheaper, passive investment tracker funds, active managers are under more pressure than ever before to prove their worth. Investors in heavily-marketed ESG funds expect nothing less.

Taking a stand on executive pay, and on wider corporate governance issues such as board diversity and supply chain risk, remains the most effective way of holding companies to account in the court of public opinion.

It’s here that the role of independent non-executives really matters. They make up the bulk of the remuneration committees that set executive pay.

In our recent report with the Non-Executive Directors Association, we found that boards are increasingly mindful of these reputational risks as a result of the pandemic, and are turning to NEDs to help them guide decision-making.

We’ll soon find out which boards have successfully navigated that tricky course between profit and purpose, and those who have fallen at the final hurdle.

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