Greg Wright: Boards must be braced for dissent over pay

SHAREHOLDERS are sometimes dismissed as a passive bunch, who nod through generous executive pay deals without a murmur of dissent.

Burberry’s investors, it seems are a rather bolshier breed. Last week they staged one of the biggest shareholder revolts of recent years, and forced the company’s board to answer some tough questions about the amount they are paying their new CEO, Halifax-born Christopher Bailey.

Altogether 52.7 percent of the votes cast in a ballot at Burberry’s AGM opposed the board’s remuneration report. The resolution included a £7.2m “golden hello” for Mr Bailey, who was previously chief creative officer.

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Including this performance-based shares package, split over five years, the 43-year-old Yorkshireman is in line to receive up to £10.3m a year in salary, pension, variable bonuses and long-term awards each year. He is also due to receive shares worth £19.5m by 2018 under previous “golden handcuffs” arrangements with the group in his previous role to prevent him from joining rivals.

The revolt sounds dramatic, but Mr Bailey won’t be forced to hand back any money. The vote is non-binding and related to awards over the last financial year

However, the Institute of Directors said that Burberry investors had “fired a warning shot” at the meeting.

If the board doesn’t react, then shareholders may use their new binding powers next year, the IOD warned. Some shareholders are far from timid. In a first for a London-listed company, investors recently voted down the remuneration policy of engineering firm Kentz.

Burberry chairman Sir John Peace now faces some awkward questions, and Mr Bailey is under intense pressure to prove his worth. Afterwards, Sir John said he felt that the main issue that troubled investors was the award of the 500,000 shares. He also pointed out that the company had received the support of 83.9 percent of the vote in the separate binding ballot on its forward-looking remuneration policy.

The chairman had defended Mr Bailey’s pay during the formal meeting, describing him as “a rare talent” who could command a much higher package outside of the UK. Since Mr Bailey joined Burberry in 2001 its market value has increased from £1.1bn to £6.5bn. One shareholder who attended the AGM said Mr Bailey was “worth every single penny”.

However, at a time when many Britons are still struggling to cope with the cost of living, “golden hellos” of this size are always going to face fierce opposition, and not just from shareholders. It creates the impression that the City is out of step with the rest of society.

According to the High Pay Centre think tank, executive pay has grown from 60 times that of the average worker to almost 180 times since the 1990s. The pay of the average FTSE 100 chief executive increased from £4.1m to £4.7m last year, according to the think tank’s own research. The High Pay Centre said trust in business was being damaged by the perception that an executive “elite” were reaping all the rewards from economic growth.

From now on, every major PLC must be braced for rebellion.

A few weeks ago, I was putting the finishing touches to our special Tour de France edition of Yorkshire Vision magazine. I was trying to come up with a neat phrase to sum up its legacy, and the impact on the 10,000 strong army of Tour Makers who would line the route. In the end, I wrote: “Every Tour Maker will feel an indelible bond with their fellow volunteers, who chose to participate in one of the greatest events in Yorkshire’s history.”

I almost deleted this sentence. Perhaps it was a bit over the top?

A month later, I’m glad I included it. As Arif Ahmad, PwC’s senior partner observes below, the real boost to Yorkshire’s economy could break the £100m barrier. We’ll be toasting Le Tour long after the bunting has gone.