Only One Direction in row over excessive pay

The simmering row over executive pay and bonuses took a somewhat surreal twist this week as teen pop sensation One Direction were dragged into the debate. Or was it New Direction? Simon Walker, head of the Institute of Directors, wasn't exactly sure but he thought it was "mad" that the boyband earned £25 million (€29 million) last year, a cool £5 million apiece for the five members.

Speaking at an Institute of Directors debate on the ethics of high pay, also attended by British business secretary Vince Cable, Walker said it was "crazy" too that footballers were routinely paid £10 million a year to play football. He also called on shareholders to take a stand against excessive bankers' bonuses and boardroom pay rather than treating bosses as "rock-star executives" who should not be challenged.

Walker’s words were strongly endorsed by the business secretary, who went on to slam what he called the “extremities of pay” as “grossly insensitive and downright immoral”.

As news of Cable's "attack" on the hugely popular former X-Factor contestants spread, the embarrassed business secretary was forced into a swift U-turn (remembering, perhaps, that his boss David Cameron has appeared in a charity video with the group).

It wasn’t One Direction he had meant to criticise, he explained, but excessive pay awards for chief executives, something the government is trying to address.

Shareholders also seem to be stepping up their efforts to bring some restraint into the boardroom. After last year’s “shareholder spring” claimed the scalps of several overpaid and underperforming company bosses (David Brennan of AstraZeneca, Sly Bailey of Trinity Mirror and Andrew Moss of Aviva), another lively annual meeting season is in prospect.

The protests kicked off last week at BP, the first of the major companies to hold its annual meeting this year. Standard Life, one of the City’s leading institutional investors, called publicly on the oil giant to “raise its game” and said the group should be doing more to promote the interests of women and minority groups.

In an embarrassing blow to the board, Standard Life voted against BP’s remuneration report because it said the targets for director payouts were not stretching enough and it also refused to back the re-election of Antony Burgmans, who heads the remuneration committee.

BP chief executive Bob Dudley received a £1.8 million pay package last year, a reduction on 2011, but was also rewarded with a £5 million injection into his pension.

Clearly frustrated with BP’s refusal to overhaul its pay policies, Standard Life’s head of governance and stewardship, Guy Jubb, pointed out at the meeting that the institution had voted against or abstained on remuneration-related issues at seven out of the last eight AGMs. “We want to see the remuneration committee raise its game and make significant improvements to address our concerns,” he said.

While Standard Life’s public criticism of the board created a stir at the meeting, just as in previous years it had little impact on the outcome, with all the resolutions passing by a substantial majority.

Standard Life has a 1.3 per cent stake in BP and, in total, holders of just 6 per cent of the shares voted against the remuneration report.

There was also a 6 per cent vote against the re-election of chairman Carl-Henric Svanberg, who has been criticised for not spending enough time on company business because of other commitments.

BP appears not to have been too stung by its shareholders’ protests, pointing out after the meeting that the 94 per cent Yes vote was the highest in seven years.

Law to change
This will be the last annual meeting season before the law changes in October, giving shareholders more influence on board pay policy. Although the original proposal for an annual binding vote on pay has been diluted to a vote every three years, it will put some power behind shareholder protests rather than rendering them largely symbolic.

In the meantime, we can expect stormy meetings in the weeks and months ahead. The banks top the list once again, and shareholders are expected to be vocal in expressing their anger over the multimillion- pound bonuses handed out to hundreds of bankers, including those in the bailed-out Royal Bank of Scotland.

Barclays, which was fined £290 million in the Liborrigging scandal, is also being targeted by shareholder activist groups after it chose cover of budget day to publish details of almost £40 million in bonus payments to top executives. On Monday, the bank was also named by the British financial conduct authority as the financial institution that attracted the most customer complaints last year.

Fiona Walsh writes for the Guardian in London