Blackfriar: Uprising pays off after long winter of investor discontent

Shareholders’ votes on executive pay and rewards offer guidance to boards, but carry no enforcement power.

Company owners can give a stern rebuke if they think the chief executive is pocketing too much, but ultimately, it’s just that: a telling-off with no punishment.

In an era when real wages are stagnant or falling, FTSE 100 chief executive pay increased 12 per cent last year. That alone is enough to suggest executive pay is out of touch with reality.

Blackfriar has witnessed the inevitable frustration when a remuneration report is rejected by shareholders, but the board takes little action in response.

Shareholders rejected SIG’s remuneration report in 2010, which featured a salary hike of almost 15 per cent for chief executive Chris Davies, after it sunk to an annual loss. Even so, that was not enough to persuade SIG to back down.

But the events of the past few years have taught shareholders some painful lessons. When directors are given too much slack, or rewarded for mediocre performance, companies suffer.

At last the ‘shareholder spring’ is picking up momentum.

Aviva’s chief executive Andrew Moss recently paid the ultimate price, quitting the insurer when 54 per cent of shareholders voted against its annual report.

Investors last week rejected WPP’s remuneration report which included a £6.8m pay deal for chief executive Sir Martin Sorrell.

So Business Secretary Vince Cable’s overhaul of shareholder powers, however belated, is welcomed by Blackfriar.

Yesterday he told Parliament companies will be forced to have binding votes on executive pay every three years, enforced through a simple majority.

Exit payments will also be subject to a binding vote, and companies will need to better explain how directors’ pay compares to the wider workforce.

A single figure will detail executives’ total rewards, spelling out exactly what they are being paid.

Of course, companies need to be able to attract and retain the best executives, and should be able to reward good performance.

But if Cable’s changes tame rampant inflation in executive pay, and ensure directors can be penalised as well as rewarded, companies and shareholders will be the ultimate beneficiaries.

Morrisons’ trading performance is not just worrying outspoken former chairman Sir Ken, who warned shareholders at the recent AGM that the current management is neglecting the core business. While his assertion that Morrisons is creating a new Safeway with all its inherent problems may be a little over the top, his concerns have rung a bell in the City.

A number of analysts are now questioning Morrisons’ strategy and asking whether the Bradford-based supermarket chain is going too upmarket.

Trading has deteriorated as new ranges such as M-Kitchen have been introduced and now almost 15 per cent of the estate is in the new ‘Fresh Format’ design, which has been criticised for being more “smoke and mirrors” rather than effective merchandising.

Shore Capital analysts Clive Black and Darren Shirley said in a note yesterday: “Morrisons may be disenfranchising traditional clients whilst not yet attracting those more in tune with its higher category offer.” The worry is that Morrisons has not cashed in at a time when market leader Tesco has run into trouble.

Tesco is poised to throw money at the problem (around £1bn in 2012/13) in order to sort out its underperforming UK stores.

At the same time, Morrisons appears to have been hit by arch rival Asda’s takeover of Netto stores in its traditional Northern heartlands.

It does appear that number two player Leeds-based Asda and the third biggest supermarket chain Sainsbury’s are making the most of Tesco’s troubles while Morrisons has not.

While Asda and Sainsbury’s have little in common at first sight, both have enjoyed enormous success with their promise to be cheaper or the same price as Tesco.

Asda’s ‘Price Guarantee’, which promises to be 10 per cent cheaper than rivals’, spurred Sainsbury’s to launch ‘Brand Match’, which offers money-off coupons if a brand is cheaper at Tesco or Asda.

The news that Morrisons is running a coupon trial in 10 stores in the North East could be too little and too late.

Morrisons said that its coupon system is nothing like as complex as its competitors’.

There’s a very good reason for this.

Morrisons simply doesn’t have the sophisticated IT systems that Asda and Sainsbury’s have.

The jury is out on Morrisons. So far Dalton Philips has been an impressive chief executive.

He now needs to pull something more out of the bag.