Anglo American got off lightly.
A 42% revolt against the pay report was less than the 59% seen at BP last week, but was bound to be. The BP row was about actual rewards – notably chief executive Bob Dudley’s £14m – whereas the Anglo affair involved sums that may be paid to executives in future. Passions always run higher when pay has already been trousered. The moral of both tales, however, is the same: boards should know when to use common sense.
The bone of contention at Anglo was the granting of three times as many incentive shares to executives than a year ago. How did that happen? Because Anglo’s share price had fallen 75% and executives’ incentives are calculated as a percentage of salary; thus a lower share price equalled a greater number of incentive shares.
But that fails a common sense test in the context of Anglo’s woes. Management – potentially – gets lucky if the share price falls 75% and then recovers to its old level. Long-term shareholders, by contrast, merely get back the value they had in the first place.
The company’s defence is that it’s hard to define what’s a “low” and a “high” share price. That is why the scheme is mechanistic, and cuts both ways. And, anyway, shareholders approved the formula a few years ago, complete with the usual clauses about satisfactory returns on capital and so on.
Everything Anglo says is strictly correct but, come on, this was a situation crying out for “discretion”, the most under-used implement in remuneration committees’ cupboard. The non-executives are allowed to override the system, but rarely do.
As it happens, the Anglo vote coincided with a thoughtful report from the Investment Association, the trade body whose members manage £5.5tn of assets. The association was opining in general terms but one of its recommendations could have been written for BP and Anglo: “Discretion should be used, both upwards and downwards, rather than committees relying on formulaic outcomes.” Correct.
The Investment Association’s overall view is that the current approach to executive pay at UK listed companies is “not fit for purpose”. That is hard to dispute when you consider its statistics: the FTSE 100 index is roughly where it was 18 years ago but the era of supposed pay-for-performance has seen executive pay more than treble.
The worst actors in this drama are those pay committee directors who wave their formulas, hide behind remuneration consultants and fail to provide an ounce of leadership.
Time for VW leadership to cough up over emissions scandal
Volkswagen’s agony will not be eased by news from the UK that all best-selling diesel vehicles, from a range of manufacturers, failed to meet EU standards for nitrogen oxide pollution when driven in the real world.
Instead, over in the US, VW will be obliged to buy back 480,000 cars as part of a settlement with US regulators of the test-cheating scandal. Throw in compensation for drivers, likely fines plus lawsuits and it is still not possible to say how much the affair will end up costing – it could be tens of billions of dollars.
The German carmaker, one assumes, will offer some form of guess alongside next week’s results. But, by rights, VW should be able to do more to explain how it cheated nitrogen oxide emissions tests in the first place.
About 450 experts, we were told last December, were working flat out to get answers since the scandal broke last September. Who authorised the scam and whose bonuses will be reclaimed? All we’ve heard so far, however, is anodyne words about “weaknesses in some processes” and a “mindset” in some quarters that tolerated breaches of the rules. It’s time to cough up.
Premier League potential fairytale doesn’t warrant bookies’ beef
Bookies are never happy but this is ridiculous. “Despite significant ‘cash out’ take-up from customers, we still have a liability of circa £3m should Leicester City win the Premier League,” grumbles Ladbrokes in a trading statement.
This is a bit like a car insurer complaining about people having accidents. Come on, you wouldn’t have a business if sporting events weren’t won and lost. Tell us how much you won’t be paying out on Chelsea, Manchester City and Manchester United before complaining about Leicester’s run for the title, on which you will have taken next to nothing at the long start-of-season odds.
Indeed, after a loss-making Cheltenham, Ladbrokes and its rivals have enjoyed a happy run. The Grand National was won by a lightly-backed 33-1 outsider and Barcelona have been dumped out of the Uefa Champions League. Cheer up.
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