It’s Monday and four days have passed since the general election on 6 May resulted in no political party receiving an overall majority. Yes, our first ‘hung parliament’ for decades and the financial markets are responding to this and the Euro rescue plan.
As the electorate made their political selection last Thursday, remuneration voting was alive and well as the Annual General Meeting (AGM) season is underway. Nearly one third of shareholders at a major defence and aerospace company registered dissatisfaction against variable pay of their executives. Why? The opposition was in response to the company’s decision allowing executives to defer up to half their 2008 bonus and to earn twice as many shares in the future.
Meanwhile at the AGM of Britain’s largest retail bank, the Lloyds Banking Group with 41% owned by taxpayers, more voting took place. Surprisingly only 8.5% of shareholders rejected the bank’s recommendation to award £5m to senior executives in a financial year which ended with a £6.3 billion loss. While the Chief Executive elected not to take his £2.3m bonus such decisions once again raise the perennial issue of aligning performance and reward.
So what have we learnt from the financial crisis? How does the Walker Review of corporate governance in banking and finance help inform our learning? It’s clear that one of the report’s key themes to align executive reward to medium and longer term strategic priorities and risk issues still lies in the balance. Let’s consider the investor and shareholder view. They are giving boardrooms loud and clear messages e.g. ensure non-financial strategic measures have a financial underpin; don’t incentivise inappropriate risk taking; avoid one-off retention awards etc.
The Walker Review tackles these issues though how are the boards and remuneration committees of banks and other financial institutions (BOFI) responding and leading? The phrase ‘work in progress’ springs to mind. Priorities need to ensure that executive remuneration packages are based on performance indicators that reflect shareholder interests, increase transparency so that better informed judgements can be made on board performance. Greater involvement of independent non-executive directors is also critical to ensure that shareholder interests prevail. Until the groundwork is in place we can expect more voting beyond this month’s General election.
A trackback is a method for Web authors to request notification when somebody links to one of their documents. This enables authors to keep track of who is linking, and so referring, to their articles. Some weblog software programs, such as Wordpress, Drupal and Movable Type, support automatic pingbacks where all the links in a published article can be pinged when the article is published. The term is used colloquially for any kind of linkback.