Nice someone does
ADD another group to the list of irritants bothering the bosses of financial firms: shareholders. The long run of ever-expanding compensation for executives is under threat from investors on both sides of the Atlantic.
Aviva, a British insurer with a downwardly mobile share price, announced on April 30th that its chief executive would forgo a planned pay rise because of shareholder criticism. The head of the compensation committee for Barclays was heckled at the bank's annual meeting in London on April 27th. Big American banks cleverly scheduled their meetings away from the clamouring mobs of Wall Street—Citigroup went as far as Dallas and declined to provide a webcast. But its efforts could not muffle the bang made by a non-binding shareholder vote against a ludicrous compensation scheme for Vikram Pandit, its chief executive.
Citi is not alone. FirstMerit of Ohio also lost a shareholder vote in April, having granted its chief executive a steep rise despite single-digit returns on equity and a depressed share price. Three other large American financial firms received less than 65% approval on pay-related votes, a symbolic if not actionable threshold, according to Semler Brossy, a consultancy that began last year to collect data on these votes.
There are many more of these dramas to come in the months ahead. UBS, a perennially underperforming Swiss bank, was expected to face shareholder anger over pay at its annual meeting on May 3rd. Capital One will have its annual meeting on May 8th, and a “no” vote is recommended by Glass Lewis, an adviser to institutional investors.
The shareholder meeting of Goldman Sachs, on May 24th, is another flashpoint. The advisory firms have yet to weigh in but the bank is facing a highly unconventional challenge from the Sequoia Fund, a rare financial entity with a long-term reputation for good returns and exemplary conduct.
Sequoia broke its usual silence last month to urge the ousting of James Johnson, the board member chairing Goldman's compensation committee. A letter from the fund's managers noted he “has been at the centre of several egregious corporate-governance debacles”, and cited Mr Johnson's own management of Fannie Mae and compensation scandals at KB Homes and United Healthcare during periods when he served on their boards. Mr Johnson's experience has been good enough for Goldman's shareholders to have elected him to the company's board since it went public in 1999. The winds are changing.


Source:economist.com