The government is promising to do something about excessive directors' pay, but will it have any effect?
Those who are outraged by the inflated salaries that some of our top company directors are awarding themselves, while shareholders are stuck with mediocre performance, appear to have a possibly unlikely new champion in the form of the Prime Minister.
In a survey of 87 of the FTSE 100's constituent companies, the Institute for Public Policy Research found that chief executives take home total remuneration deals averaged £5m, a 33% rise on the previous year. That comes on top of a High Pay Commission finding that bosses' pay at some of our top companies has risen by 4,000% over the past 30 years, during a time when average workers' pay has grown by only 300%.
Few would raise their eyebrows at bumper rewards for bumper performances, but that's just not what we are seeing; bosses are continuing to pad the lining of their pockets while we're in one of the worst economic slumps for decades and the valuations of our companies are stagnating.
Enter the PM
And now David Cameron has stepped into the ring, promising that shareholders will get a binding vote on the size of the rewards they hand over to the people they employ to run the companies they own.
Talking of a market failure, and recognising that some directors are worth their money, Mr Cameron told the BBC that some were "taking money from the owners of the companies and from pension-holders and the employees".
There could be legislation as early as the next Queen's Speech, and wresting the power to decide boardroom pay from the directors themselves and handing it over to shareholders has to be a good thing. But will it work?
The big problem is that individual private shareholders tend to be in a very small minority when it comes to our major companies, with institutional investors -- fund managers, pension funds, investment banks, and so on -- holding the lion's share. And the long-standing City habit of just rubber-stamping whatever pay deal happens to be on the table might be a difficult one to break.
Why rock the boat?
After all, if you're managing someone else's money and motivated by your own short-term commissions rather than by the long-term rewards enjoyed by your customers, where's your incentive for rocking the boat? Voting out pay deals is not going to gain you any competitive advantage over rival investment managers, who'll most likely have their funds invested across the same range of companies.
Currently, shareholders have only an advisory role to play in deciding pay awards, and there's rarely a voice raised in protest from the big institutions, so it's perhaps a little naive to assume that they'll suddenly find their voices once they actually have some power to make changes.
But does that mean small shareholders will forever have no say in the running of their companies? Not at all, as there is a growing grass-roots revolution building steam, partly through the communicative and organisational power made possible by the internet.
Outrage over directors' pay is a regular topic on the Fool's own discussion boards, as a recent thread covering the AGM of the small property investment company Conygar (LSE: CIC) demonstrates, and it shows the increasing power that smaller shareholders can wield when they get themselves organised.
So go to AGMs, ask questions, voice complaints and don't just sit back and be quietly ripped off. And join ShareSoc, the UK Individual Shareholders Society, which says "...private shareholders are hampered by poor laws, lax market regulation, ignorance of your needs by the Government, high taxation and by disdain from the companies in which you invest in some cases".
This is true, and it will require changes in legislation. How effective the government's latest plan will be remains to be seen -- we'll have to wait until we see the details, and even then it will depend on the effect it has on the back-slapping old boys network that is the City. But it's a start, and we should probably expect a future Labour government to take things further.
What do you think? Will the Tories' proposal have any teeth? Feel free to share your thoughts, below.
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