May 27, 2012

Various articles and issues over the last month have seen unprecedented power being exercised by shareholders.
Business Line opinion issued today gives a good summary. The Guardian covered the Barclays debacle as did The Telepgraph and many others.
Aviva as covered by InsuranceAge and BBC earlier this month. The end of this article in The Guardian gives other examples of pay rejections by shareholders in recent weeks.
The UK Corporate Governance Code has a lengthy section of remuneration, the first main principle stating

D1.  The Level and Components of Remuneration

Main Principle  –  Levels of remuneration should be sufficient to attract, retain and motivate directors of the quality required to run the company successfully, but a company should avoid paying more than is necessary for this purpose. A significant proportion of executive directors’ remuneration should be structured so as to link rewards to corporate and individual performance.

A further supporting principle states  –  The chairman of the board should ensure that the company maintains contact as required with its principal shareholders about remuneration.

Solution

Good corporate governance would therefore prevent this kind of rebellion by shareholders.

There is a whole section on remuneration and the Remuneration Committee in the Code.  Board evaluations should include a more rigorous consideration of the governance adherance of the Remuneration Committee.

This could cause a heavy push back by the Remco Chairman or total relief that there is an objective voice of reason to hand.

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