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Executive pay emerges as full-blown CSR issue

March 2009

Pressure on companies to tackle excessive executive pay has ratcheted up significantly in the past month as investors and politicians around the world have begun to force the issue into the public domain.

Political leverage on executive remuneration has increased in the US with the election of Barack Obama as president. Last month he promised that executives of companies receiving government bail-outs will have their pay capped at $500,000 a year. Companies that want to pay their executives more will have to do so through stocks that cannot be sold until the companies repay the money borrowed from the government.

Under the proposed new rules senior executives made redundant at state-supported businesses were to receive a maximum ‘golden parachute’ payment of a year’s salary.

In Europe there have also been measures to curb excessive pay. The European Union is not proposing legislation, but the French government has announced that banks and car companies that have accepted c21billion ($26.5bn, £18.7bn) in state aid will be barred from paying bonuses. In Germany executives at rescued banks are to be limited to salaries of c500,000 a year without bonuses, and Switzerland is considering similar curbs.

Elsewhere, companies have imposed voluntary limits. They include the Spanish bank BBVA, which has frozen senior executives’ salaries, and Danske Bank in Copenhagen, which has cancelled bonuses for its executive board.

RiskMetrics Group, a consultancy that monitors proxy voting in the US, reports that shareholder advocates there have submitted executive compensation resolutions at about 100 corporations for the forthcoming proxy voting season – more than in any previous year.

There are also signs that  the traditional resistance from companies to such motions may now be diminishing. Intel, one of the largest companies in the US, has already agreed to introduce an advisory vote on executive pay following an investor campaign.

The semiconductor chip maker, which employs 84,000 people and has a market capitalization of $70bn (£49.5bn), said the motion, which called for an advisory vote on executive pay at all share-owner meetings, was ‘a reasonable thing’. But it added that a proposal by Obama to mandate annual non-binding share-owner votes on executive compensation had also influenced the decision.

Tim Smith, senior vice-president at Walden Asset Management, said the company’s decision indicated a growing acceptance that executive pay is becoming a full-blown CSR issue. ‘There’s more engagement on this issue this year than ever before,’ he said.

However, Smith warned: ‘The floodgates have not yet opened and lots of companies are still fighting back rather vigorously.’




Riskmetrics | Global | Executive Remuneration

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