The City's pay schizophrenia will fuel discord

Mark Kleinman
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Tower 42's Bird Study Project 2011
The government’s consultation is supposed to create an environment in which executive pay rows are but a distant memory (Source: Getty)
here won’t be much sympathy on the streets of the City today for the eight dozen-or-so people who chair FTSE-100 remuneration committees.

Call it Thumbscrews Day, if you like – because by the close of play, Whitehall will have been deluged with all sorts of funky ideas about how boards should be addressing the Prime Minister’s desired clampdown on corporate excess.

Responses to the government’s green paper on corporate governance and executive pay will be many and varied, and will expose deep divisions about how – and whether – business can address the chasm of public mistrust which has engulfed private enterprise since the financial crisis.

Read more: Firms are wising up on the need to reform executive pay

In truth, listed companies have largely brought it upon themselves, but institutional investors must also shoulder part of the blame.

Largely supine for years, the latter group has tended to raise barely a whimper in all but the most egregious cases, which has helped engender a creeping sense of boardroom complacency. All of this has led to a situation in which pay committee chairs find themselves hopelessly conflicted. Take a company in which Blackrock, Fidelity, Hermes, Legal & General and M&G Investments are all big shareholders (not unusual in the FTSE-100).

Read more: Are big investors right to want curbs on chief executive pay?

According to the submissions some of these institutions and their trade association are making to the government today, their views are often diametrically opposite.

Some want greater use of restricted stock, others hate it; some cannot abide the idea of an annual binding vote, while others believe the idea is essential to ensure accountability; some want pay ratios published across different areas of a company’s hierarchy, but others think such disclosures will be meaningless and divisive.

One remco chair I spoke to yesterday believes his role has become toxic, and that it has become far more challenging to convince board recruits to take it on.

Read more: Fund managers plan executive pay crackdown to avert government intervention

Fidelity’s demand for directors holding that role to be ousted if they fail to secure at least 75 per cent support for the annual pay report suggests he may be right.

The government’s consultation is supposed to create an environment in which executive pay rows are but a distant memory.

Now, the opposite looks more likely.

RBS loses no sleep over pay

One woman who won’t have been enduring sleepless nights over the government’s consultation – perhaps paradoxically, given the mess the company remains mired in – is Penny Hughes, chair of the pay committee at Royal Bank of Scotland.

It has taken her and her colleagues some years to achieve it, but they have arrived at a point where RBS genuinely is a back marker when it comes to the boss’s pay.

Read more: Five evidence-based proposals to make sure executive pay benefits society

Under plans to be voted on at this year’s AGM, Ross McEwan’s potential long-term share award is to be slashed.

The RBS chief is also ineligible for an annual bonus, having scrapped that element of his pay two years ago.

All this while mutterings from near the Treasury suggest there is impatience with the speed at which he is turning the bank around.

Which begs the question: what exactly should McEwan be doing differently? And if Philip Hammond thinks a world-class banker would do the job for the current chief’s package, he’s sorely mistaken.

Co-op’s chaos

Having said that, I bet McEwan wouldn’t swap his job for Liam Coleman’s right now.

The new Co-op Bank boss will be hoping for a mercy killing, having put the company up for sale this week.

Read more: Executive pay is about to get a major shake-up

It’s a reminder of the woeful misjudgement regulators made allowing the lender to progress so far towards buying what became TSB five years ago – but how many employees of the then Financial Services Authority paid for it with their job?

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