Executive pay and binding shareholder votes legislation will put internal comms pressure on HR if an expensive leader is not delivering

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We are now in age that combines expectation of transparency, a desire to blame and suspicion of those in authority...so it is not surprising that executive remuneration is, and will continue to be, a front page news story.

The freshly negotiated remuneration package can quickly become a ticking time bomb if the initial heady expectations of great results from the new CEO aren’t materialising and the company needs to explain why the expensive leader is not delivering.

No matter what process a remuneration committee goes through in deciding its CEO’s and other executives’ rewards, it will be seen in the context of a continual gravity-defying rise in boardroom pay across the UK that the media (and many others) see as driven by a cosy business elite, rather than dispassionate market forces.

It is worth noting that the media generally is not anti-rich. Or even anti-business. There is little outrage at entrepreneurs, footballers, rappers, or even Jimmy Carr earning a lot (them dodging paying tax on their earnings is, however, a different matter).

What is particularly noticeable about the current climate is that other audiences have woken up and are starting to take action. Business Secretary Vince Cable, the Association of British Shareholders, and individual institutional shareholders are all now not only making statements, but exercising their power – whether it is introducing regulations or voting against at AGMs.

The good news is that huge amounts of negative coverage about excessive remuneration may not be pleasant, but it won’t sink your business. It may be a huge distraction to management, it may completely demotivate your workforce and it certainly won’t help you meet your quarterly sales targets, but it won’t sink the company.

Customers will boycott food brands with hygiene worries, clients with desert accountants whose audits are tainted, and they will avoid buying cars from manufacturers where safety standards have slipped...but seemingly greedy CEOs are not a deal-breaker for most people when it comes to their daily shop.

However, the effects on the businesses’ bottom line over excessive remuneration are real and very significant. This is a quote last week from the Financial Times regarding a highly generous retention package for the executives of Xstrata could derail the multi-billion takeover by Glencore:

“What’s the word for that money employees get paid just for showing up? “Salary”? Not, apparently, at Xstrata …. To persuade its top team to clock in for the three years after the FTSE 100 miner ties the knot with the commodities trader, Xstrata proposes £173m extra for its famously well-rewarded executives. The plan has already attracted grumbling from some shareholders. Now the Association of British Insurers has given the company its sternest finger-wagging….Xstrata is betting that its shareholder base will not cut off its nose to spite its face. But its investors have a history of dissent. They should vote against the pay package and call Xstrata’s bluff.”.

No amount of spin doctoring is going to disguise executive reward that does not match corporate performance...and the new requirements announced last week by Business Secretary Vince Cable for a simple figure for annual remuneration will aid journalists, headline writers, investors and the public cut through the complexity that currently disguises this in many annual reports.

When executive packages and their costs are being negotiated, perhaps bold HR directors will ask the remuneration committee chair whether he will be comfortable defending golden goodbyes and other controversial measures to a packed AGM. Will he be comfortable with a lead-up to this of negative press coverage and will he be comfortable with him being in the frame from shareholders questioning why he negotiated the package that they have subsequently voted down.

The best PR plan is always to avoid problems in the first place, rather than storing them up for the future. Whether it is Cedric Brown at British Gas in the 1990s, Sir Martin Sorrell at WPP in 2012, or perhaps you company in the near future – the media’s interest in fat cats isn’t going away any time soon.

Tim Prizeman is director with corporate public relations consultancy Kelso Consulting

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