To mere mortals, executive pay can sometimes seem out of this world.
Gary Cohn, the former Goldman Sachs No2 who is now director of the National Economic Council in the US, was awarded $284m (£227m) by the Wall St bank upon departure. In the UK, the best paid chief executive is WPP’s Sir Martin Sorrell, whose £63m pay packet hogged the headlines last year.
Vast payouts under controversial long-term incentive plans (LTIPs) were one reason why shareholder protests over executive pay reached a five-year high in 2016. BP, Reckitt Benckiser, and Anglo American were among the other big companies to experience a backlash from investors.
This year, those tipped as most likely to face a new round of shareholder ire over their remuneration plans again include BP and WPP, as well as Sports Direct and Liberty Media.
Last week, the mooted spring unrest kicked off early when cigarette maker Imperial Brands withdrew plans to raise its chief executive’s pay in the face of shareholder opposition. Sky-high pay may seem out of tune with the times, but it only deserves to be shot down when it runs way out of sync with investor returns.
The widespread shareholder agitation is due to a combination of social, political and financial pressures. A government green paper on reforming executive pay, which recommends publishing pay ratios comparing chief executive pay with that of average workers, will close to consultation this week.
Potential reforms may be some way off but they are already acting as a stick for change. Royal Bank of Scotland, for example, is looking to overhaul its LTIPs. In other words companies are wising up to the fact that the needle is moving on pay.
It is no longer just an issue for the banker-bashers and the Corbyn-backers. Indeed, calls for change are coming from some of the City’s leading players.
Last month, BlackRock, the asset management behemoth, demanded an end to pay awards that outpace those of ordinary employees. They’re far from the only asset manger to step up and take a lead on this issue.
Shareholders are again limbering up to take a stand on pay – as befits their role. Reform in this area is always best driven by shareholder and investor sentiment, rather than by legislative action from central government. By talking the talk on executive pay reform, Theresa May is encouraging firms to get ahead of the curve and take action at an industry level.