Will Cameron Deliver on his Pay Promise?

PRESS RELEASE 17 (10/01/2012)

ShareSoc (the “UK Individual Shareholders Society”) welcomes the commitment from David Cameron last Sunday that the Government is to tackle the problem of excessive remuneration in UK public companies

A summary of what he said is given at the end of this press release, but it included a commitment to a binding vote on pay by shareholders, better reporting of actual pay and reform of remuneration committees. These are all measures that ShareSoc has advocated recently so it is good to see that the Government is listening.

Needless to say, there has already been lobbying against these proposals by those who wish to preserve the existing status quo. The arguments range from “binding votes are legally impractical” to “these measures won’t solve the problems”. The latter is true unless a package of co-ordinated measures are introduced which we cover below.

The former is simply untrue. There are no practical problems with introducing forward looking and binding votes so long as they are based on the combined pay of all directors – this system has been in use in investment trusts for many years. It should be combined with advisory votes on the pay of individual directors, and any problems with the contracts of individual directors could be resolved over time without difficulty.

But as others have pointed out, current resolutions on remuneration are rarely voted down because of a natural reluctance of institutions to vote against the wishes of the board of directors. Making such votes “prospective” rather than “retrospective” and “binding” rather than “advisory” will improve matters but there also needs to be reform of remuneration committees who set the remuneration policy, as Mr Cameron suggested.

We support his idea of appointing shareholders to the remuneration committee – indeed it is surely best if shareholders were the dominant group on such committees with a representative of the main board and possibly an employee representative in addition. We have argued for some time that remuneration and board appointments should be made by a separate “shareholder committee” and not by the board, if “crony capitalism” is to be defeated. Someone other than the directors themselves needs to determine who gets appointed to boards and their pay.

Improved reporting of pay, so it is clearer what the directors are actually paid in total and how it moves over time and compares to other similar companies is also essential.

The last factor that needs looking at is the engagement of shareholders if the above changes are to have an impact. Institutional shareholders need to be more “engaged” with companies and take an active role in setting pay. Often they do not vote at present, rarely attend AGMs, and in some cases have no interest in engagement whatsoever (“index tracking funds” for example). We are not convinced that the “stewardship code” goes far enough to tackle these problems.

Meanwhile private investors, who are beneficial owners rather than simply acting as intermediaries for others and hence have a more direct interest, are typically disenfranchised and cannot vote. These problems need fixing also if Mr Cameron’s proposals are to have an impact.

One only has to look at companies such as Diageo, or the more recent example of Conygar (documented on our web site), to see that votes in isolation will not be effective. So our view is that Mr Cameron’s Government will not deliver unless all the following five issues are tackled:

1. A binding and forward looking vote on pay.
2. Remuneration and nomination committees should become “shareholder committees”.
3. Improved pay reporting with a national body producing comparative data.
4. The role of institutional investors and their lack of engagement.
5. The disenfranchisement of individual shareholders.

ShareSoc’s Remuneration Policies

See our submission to Vince Cable’s consultation on Executive Pay on this page of our web site www.sharesoc.org/consultations.html for more information (response submitted on the 3rd November).

What Mr Cameron had to say on BBC-TV’s Andrew Marr show

Mr Cameron said that the Government was definitely going to tackle excessive pay. Here’s a condensed summary of the key points he covered:

“What I think is wrong is pay going up and up when it is not commensurate with the success companies are having. Government should not tell people what they are going to be paid but there is a market failure. Average pay of FTSE executives has gone up 4 times from 1998 to 2010. The absolute key I can confirm today, and it will happen, is clear transparency in terms of the publication of proper pay numbers so you can really see what people are being paid. And then binding shareholder votes so the owners of the company are being asked to vote on pay levels and on dismissal packages and payments for failure.”

Marr asked about putting an employee on Remuneration Committees. Cameron said “I don’t rule that out but the key thing here is reforming Remuneration Committees themselves. Reform Remuneration Committees to make them work better and making sure there is shareholder representation. Vince Cable will be setting out proposals, we have a Queens Speech coming up and there is room for legislative changes.”

For further information, please contact:

Roger W. Lawson,
Chairman,
ShareSoc Telephone: 020-8467-2686
Email: info@sharesoc.org

Note any members of the press who wish to receive a complimentary copy of our informative monthly newsletter should send a request to info@sharesoc.org . Our newsletters cover not just the affairs of our organisation but contain general financial news and commentary. An example of our past newsletters is available on our web site. You can also follow ShareSoc on Twitter from @ShareSocUK.

About the UK Individual Shareholders Society (ShareSoc)

ShareSoc represents and supports individual investors who invest in the UK stock markets (and who own as much as 30% of the shares in UK public companies in aggregate). We are a mutual association controlled by our members with “not-for-profit” articles and incorporated as a company limited by guarantee. The organisation is financed by member subscriptions, donations from supporters and by the services it provides to members. Associate Membership of ShareSoc is free and is open to everyone with an interest in stock market investment. More information on ShareSoc can be obtained from our web site at www.sharesoc.org .

Post Date: January 10, 2012

Group description:	SIGnet Taunton is a new group with around 10 keen members at present, with a range of investment styles and experience. We welcome new members.
Meeting Type/Venue:	In person meetings at a golf club near to the centre of Taunton.
Meeting Frequency/Timing:	We meet on the first Monday of every month at a golf club near to the centre of Taunton, 11am until 3pm with a lunch break.

Group description:	An online group for those who are new to investing, or have only been investing for a few years. Including topics such as: – What is a share or a bond, why and how to buy them. – Comparing funds, unit trusts, Investment trusts and exchange traded funds. – Portfolio management and diversification. – ISAs, pensions, SIPPS and how to save tax. – How terms such as PE ratio and dividend yield are used to value a share. – How to use technical analysis or charting.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Monday of the month at 7:00pm.

Group description:	An online group for those who already have some experience in investing. Covering topics such as finding companies to invest in, financial statements and ratios, valuation / margin of safety, analysis of companies and investment trusts and exchange traded funds.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Wednesday of the month at 7:00pm.

Group description:	The Equity Income Group welcomes investors of all levels of experience, from beginners to advanced. The focus of meetings is on dividend paying Investment Trusts, though there is also discussion around individual shares.
Meeting Type/Venue:	Meetings are held online.
Meeting Frequency/Timing:	Meetings are held every 6 weeks on a weekday between 7 and 8:30pm.

Group description:	The Group welcomes investors of all levels of experience, from beginners to advanced. The focus of meetings is on all types of income generating financial instruments, from stocks through Trusts and Funds and ETFs to retail bonds. Meetings involve presentations from members, who are also expected to lead discussions from time to time, as well as discussions on what has been bought and sold since the last meeting.
Meeting Type/Venue:	Meetings are in-person in a venue in Central London.
Meeting Frequency/Timing:	Meetings are usually held on the last Thursday of every other month, starting with an informal lunch around 1pm followed by discussions until around 5pm.

Group description:	A welcoming group open to all types of investors. Typical meeting content is to have a deep dive presentation on a topic selected by the participants and a session on buy/ sell/ key lessons learnt last month.
Meeting Type/Venue:	In person at a friendly pub close to Piccadilly Circus
Meeting Frequency/Timing:	Monthly during the evening on the first Wednesday of the month.

Group description:	All levels of experience welcome. A typical meeting agenda includes: – Macro Environment – Trades: Members review existing positions and identify securities with promising TA entry patterns or setups and with suitable risk/reward. Any security, long, short, futures, options may be considered. The convener takes actual positions in trades and maintains his own detailed ledger, accurately measuring performance of individual securities and cumulative activity. Members are notified by e-mail prior to the entries or exits that are decided upon. Following each meeting an updated copy of the ledger is circulated together with the next meeting agenda. Members may wish to maintain similar ledgers of their own but there is no obligation to do so. – Technical Analysis: Techniques and systems used in trades. Members can request discussion of particular aspects of TA.
Meeting Type/Venue:	Online via Zoom
Meeting Frequency/Timing:	The first Tuesday of every month from 7 to 9pm

Group description:	Group focused on active investing, primarily in small / medium cap UK equities.
Meeting Type/Venue:	Regular Zoom meetings interspersed with occasional face to face meetings and social activities in the North West.
Meeting Frequency/Timing:	Monthly on Saturdays at 10am.

Group description:	Our group covers a wide spectrum of mainly stock market investing and trading from equities – which include shares, ETF’s Investment and Unit Trusts. We normally rotate the meeting chairperson (responsible for creating, with member’s help, suitable agendas) and a meeting presenter (members take it in turns to provide a 15 to 45 minute presentation on a subject of their choice). Various investing topics of interest are regularly discussed such as software, brokers, investing categories and markets and any related topics of interest.
Meeting Type/Venue:	Meetings will be returning to in-person in a private room at a West London golf club, close to an underground station. In the meantime monthly video calls and an in-between meeting email group will continue.
Meeting Frequency/Timing:	In-person meetings will be held on the second Wednesday of each month in the afternoons, following a golf club one course lunch.

Will Cameron Deliver on his Pay Promise?

PRESS RELEASE 17 (10/01/2012)

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