The survey begs investors to question whether they’ve been sold a pup; it also refers to the pedigree dogs that make up some of the best-known poor performers (Mark Lyttleton and Andy Brough lead the pack here).
As well as the cheap jibes, it also points out the consistent under-achievers who still manage billions of pounds of individual investors’ money while also costing them hundreds of millions of pounds in charges.
Bonuses flat
On the same day these facts and figures were released, PricewaterhouseCoopers (PwC) produced the results of its research into executive pay and found that while base salaries are likely to increase in 2012, 85% of respondents (from FTSE 350 companies) expect no rise in bonuses. This does not mean there will be no bonuses, just that any bonuses will be no higher than this year.
Sean O’Hare, reward partner at PwC, commented: "Even moderate pay increases in line with inflation are likely to prove controversial given the building public and political pressure to address the widening gulf between the highest and lowest earners, compounded by tough economic conditions.”
He went on to say: “But whether anticipated salary rises play out next year will depend on whether markets improve. Increases that are not aligned to company and share price performance are likely to meet strong resistance from shareholders."
Bonus payouts in particular will depend on whether executives meet performance targets, which are likely to become more stretching. PwC data shows that bonus performance metrics are focusing more on company revenues, profits and strategy.
O’Hare added: "One of the biggest causes of shareholder concern has been bonuses paying out even when company performance has been disappointing, as was sometimes the case in 2010. Toughening up executives’ targets and ensuring they reflect business strategy has become a major focus."
Clawback pay
One encouraging sign is that in 2012 30% of firms are planning to introduce clawbacks whereby they could take back executives pay, most likely through the reduction of any outstanding deferred shares or other long-term incentives. Salary increases are expected to be between 2% and 4%, in line with this year’s figures, indicating that salaries are not going to race ahead to make up for any bonus shortfall.
“Whether tougher performance measures will mollify shareholders, politicians and the public will depend on whether they’re seen to work. Shareholders don’t object to top performers being well paid, the problem is sifting these from the mediocre ones,” said O’Hare.
Looking at the Bestinvest survey, there are still a lot of not-even-mediocre funds being run by managers living off former glories, while the fund charges and manager remuneration presumably remain the same. City AM described the results of the PwC survey as “the pay of top executives can be recouped if decisions they make adversely affect the business”.
For shareholders above, read ‘investors’, and for top executives, read ‘fund managers’, and the Bestinvest survey takes on a whole new meaning.
Business secretary Vince Cable and the High Pay Commission are both to announce reports on executive pay in the next few months, and, if nothing else, fund managers will hopefully be required to justify whatever their remuneration deal is given the perception is they lose investors money while never knowingly losing their own.
As O’Hare concludes: "Companies on their part need to get better at explaining why people are being paid particular amounts. Ultimately you don’t want people to feel beaten up for generating wealth."
