Are shareholder revolts over executive pay a coherent response to poor performance?


Carol Arrowsmith

The 2012 AGM season has witnessed high levels of shareholder activism, focused on the bellwether issue of executive pay. The UK tends not to regulate these issues, believing that companies should follow good practice or explain their position – “comply or explain”. This year we are seeing shareholders challenge some companies – a robust demonstration of this principle at work. In general, shareholders don’t have a problem with pay for performance, and overall levels of voting are not dissimilar from previous years. What we are seeing in the market is a coherent and concerted response by shareholders where it is felt that companies have fallen short of the corporate governance standards expected, or where pay is out of line with performance. The shareholder spring is, therefore, simply the result of a democratic capitalist system in action.

Carol Arrowsmith is a remuneration partner at Deloitte.


Thomas de Freitas

Shareholders have proven themselves an ignorant mob in recent times. Success comes from the top, and if chief executives are hounded out of office by shareholder activism, businesses critical to our economy and its continued recovery will be left without direction. Chief executives capable of running large public businesses are rare enough; try paying them less and watch them drift over to the US, China, or wherever else they will earn more (and be taxed less). Make sure they own – and are paid in – shares (not options which incentivise risk taking) and put claw-back measures in place if they underperform, but not to the extent that they never take a chance. Anyone prepared to shoulder the weight of expectation of shareholders and fund managers, particularly in such choppy markets, is deserving of premium rewards.

Thomas de Freitas is managing director and director of specialist markets at Communicate Recruitment Solutions.