Railpen, in a statement addressing its concerns about governance at Reckitt Benckiser, questions the “effectivenss” of two longserving directors. Railpen outlines that the remuneration committee, under Ms Sprieser’s leadership, failed to address concerns in the new pay policy. The fund therefore voted against the remuneration resolution and against the re-election of Ms Sprieser and other members of the remco.
“We are increasingly questioning the logic of some remuneration committees in determining the appropriate level of pay to motivate, incentivise and retain CEOs and to properly align their interests with those of shareholders,” Railpen’s Gilshan says. “Shareholder patience is running out and remuneration committees need to listen more to what they are hearing from investors in private dialogues in engagement meetings and to what shareholders are signaling through their voting decisions.”
If excessive pay is indicative of governance failings at companies, shareholders are right to target those they appoint to manage companies on their behalf.
Afterall, as Mark Goyder, founder director of Tomorrow’s Company, says: “It is logical that the most important decision shareholders can make is the delegation of authority to the executives they elect.”
However, in order to be more effective, shareholders need to think more carefully about pay in absolute terms. How much is too much for a single individual? This would go some way to addressing the cycle of rising pay intrinsic to a system based on peer-group analysis.
ABSOLUTE PAY
Investors have already shown themselves capable of making this shift from relative to absolute thinking in the wider investment framework and the same needs to be done for executive pay now. A more definitive approach in their guidance to their fund managers and those voting on their behalf would go a long way to helping remcos apply common sense.
However, although progress is being made, Bridgeland asks: “Are we really thinking hard enough about what levels of pay are justified in absolute terms? Probably not. Humans are simply better at making decisions relative to other things and get out of their depth thinking in absolutes.”
