When you live in a world where a bonus of £2.5 million sterling (€4.05 million) is considered so derisory it wouldn't give you "bragging power in a Soho wine bar", it must be difficult to understand why the shareholders who own your company are upset.
Sir George Mathewson, executive deputy chairman of Royal Bank of Scotland, who shared this bonus with three other executives, may well live to regret this remark, particularly if the National Association of Pension Funds (NAPF) succeeds in removing two of the recipients from the bank's board.
The NAPF, which collectively controls about 25 per cent of the UK stock market and is the single biggest shareholder in Royal Bank of Scotland, finds the bonus payment - a reward for clinching the National Westminster deal - totally unacceptable and is flexing its muscles in protest. Its action comes at a time when eight of the UK's major institutions have begun to lobby public companies to allow shareholders to vote on directors' remuneration. The British government is also considering introducing legislation to give investors a say in the amount of money directors pay themselves.
Investors with shares in Jefferson Smurfit would do well to monitor these developments, because if they succeed, it will be just a matter of time before they will be able to decide how much "bragging power" to award its chairman and chief executive Dr Michael Smurfit.
The patience of UK investors have been well and truly tested in recent years, with the £10 million bonus paid to Vodafone chief executive, Mr Chris Gent, for winning the race to buy Mannesmann in Germany proving to be the final straw. But at least they knew what individual directors were earning.
This is the first year this courtesy will be extended to Irish investors. Companies listed on the Irish Stock Exchange have finally been required to disclose the remuneration packages of each director. Irish fund managers waged a long a difficult battle to win this concession and it was only when the Tanaiste, Ms Harney, threatened to bring in legislation that the Stock Exchange adopted the UK standard.
Ms Ann Fitzgerald, secretary general of the Irish Association of Investment Managers, the industry body representing the investment companies, says disclosure is the first step in providing greater transparency for investors. "A vote on directors' pay may be the next step and particularly if this happens in the UK."
Ms Fitzgerald says there is no begrudgery in terms of what directors are being paid if the company is doing well and delivering earnings growth for shareholders. Mr Pramit Ghose, Hibernian's chief investment officer, says that based on what is known so far about directors' pay here, salaries and bonuses tend to be much larger in the UK public companies.
He doesn't see the immediate need for a vote on directors' pay, suggesting that fund managers are well able to bring behind-the-scenes pressure to bear on companies who tend to be over- generous to their executives. "Over the years this type of informal contact has led to some revision of packages," he says. Some sources suggest Smurfit has previously toned down its directors' pay packets in response to this type of intervention.
Fund managers tend to meet privately with the big public companies about twice a year in addition to presentation of their results and annual general meetings. For smaller companies an annual visit tends to be the norm.
Even if a vote on directors' pay is introduced, Mr Ghose and several other fund managers question whether shareholders are sufficiently qualified to set pay rates for directors. "We are paid to invest in shares and not to decide what the chief executives should be paid," Mr Ghose says.
Another fund manager suggests that a vote on remuneration would be a very welcome development and concedes it will almost certainly begin to happen in the next couple of years. "Institutions will now be in a position to follow up cases that look a bit rich. We will have to analyse how these rates are struck and compare packages with the market rate." Scottish-based fund managers, Baillie Gifford, is one of the eight behind the UK lobby to persuade public companies to voluntarily introduce a vote for shareholders. Mr Colin Melvin, the firm's corporate governance manager, says, at the moment, if shareholders believe directors are over-paying themselves, the most effective means open to them to vent their anger is to vote against the re-election of those directors, similar to what the NAPF is doing at Royal Bank.
"This is not necessarily the most effective thing to do because you often end up voting out a capable director because you don't agree with his pay."
The group has written to the chairmen of 750 UK companies to urge them to allow a vote suggesting that a voluntary response to shareholders' requests is better than waiting for legislation to force this. "We are doing this out of interest to our clients and in the spirit of greater accountability," Mr Melvin says.
Depending on the success of this campaign and whether UK Trade Secretary, Mr Stephen Byers, incorporates it into legislation, UK shareholders could conceivably be voting on directors' pay at annual general meetings in 2002.
Given the huge decline in the amount of Irish stocks held by the Irish investment institutions, it will be UK and international investors that will drive these changes. It will be just a matter of time before Irish shareholders enjoy the same rights.
In the interim expect much debate on the issue, with some public companies claiming it would be ridiculous for shareholders to vote on directors' pay. But shareholders are finding their voice and companies would do well to listen to them.
