Shareholders must speak out over pay mockery

Anthony Hilton12 April 2012

PERHAPS the tide it turning on executive pay. The Prudential board last week decided to withdraw its incentive scheme for top management rather than force it through its annual general meeting. It had the votes it needed to get the scheme approved but there was enough disquiet for it not to want to press the point.

More companies should do the same, and so too should more shareholders. It is little short of a disgrace that the directors of Telewest should collect hundreds of thousands of pounds of bonuses in a year when the shares have lost 80% of their value and while it remains touch and go whether the company can survive without having to swap some of its debt mountain for equity.

The joke is that more often than not pay does not deliver performance. Figures were published last year, and commented upon in this column, that showed there was no correlation between the performance of Footsie companies and the amount of money they paid their executives. Many of the best performers were the worst payers.

Managers are loath to admit it but the fact is that most successful executives owe that success to luck - they are in the right industry at the right time and make the most of favourable conditions. The suggestion that they will work harder or do better, or somehow operate at a higher level of intelligence because they are promised more money, is absurd in itself.

They all do the best they can, and all the promise of riches does is tempt them to take more risks. When those risks go wrong, they leave under a cloud but with a bucket of cash. So what was the point of the scheme in the first place? Executives are entitled to a fair rate for what can be a difficult job. But shareholders have let things get out of hand. Pay levels and bonus schemes are such a mockery they are giving business a bad name.

It is time shareholders asserted themselves in every company rather than in just a few high-profile cases and put a cap on the current excess. If the Prudential can be forced to think again, so too can every other major company.

Mature attitude

PEOPLE in the private equity business should be encouraged by the figures produced today by the British Venture Capital Association. It has been a rough year for them but it has brought encouraging signs of maturity.

Private equity firms responded positively to the challenge of a downturn, and those who supply them with the money also seem to be taking a more mature and sensible attitude. It was a feature of the 1980s that the pension funds poured in at the top of the market, got involved with high-profile deals and then ran for cover when things turned sour. Today's pension funds seem to be more professional in their approach. They are interested in a spread of investments rather than a few high-profile deals, they understand that they are in this for the long term, and they rather welcome the market slowdown as offering better buying opportunities. Pension fund trustees are recognising private equity as a separate asset class and allocating funds to it.

The BVCA has helped by urging its members to standardise the way they value their funds and to err on the side of caution. But if the economy remains flat, success will be harder to come by. The measure of the quality of the industry will come from its ability to knuckle down and cope with these conditions, knowing that in the medium term things should come right. The test for the investors will be to have the foresight to continue putting money in when the market is flat.

Create a FREE account to continue reading

eros

Registration is a free and easy way to support our journalism.

Join our community where you can: comment on stories; sign up to newsletters; enter competitions and access content on our app.

Your email address

Must be at least 6 characters, include an upper and lower case character and a number

You must be at least 18 years old to create an account

* Required fields

Already have an account? SIGN IN

By clicking Create Account you confirm that your data has been entered correctly and you have read and agree to our Terms of use , Cookie policy and Privacy policy .

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged in