Thursday, October 21, 2021

We’re all the poorer for shareholders’ loss of nerve on executive pay

Investors failed another test of backbone last week, as a number of eye-popping pay packages overcame the threat of voter rebellions at annual general meetings. The board of AstraZeneca asked shareholders to support their decision to award the chief executive, Pascal Soriot, £18m in annual pay and perks.

Despite strong shows of dissent, from shareholder advisory groups and investment powerhouses such as Aviva Investors and Aberdeen Standard Life, the pay deal passed with 60% approval and nearly 40% voting against.

This was a chance to make a big statement on pay restraint because the vote was binding – had the investment community spoken as one against Soriot’s pay, AZ would have been forced to ratchet down its chief executive’s gains.

And it wasn’t just at AZ that the City balked last week. A pay deal at Savills was passed with just a quarter of the shareholder base refusing to back it, despite it being the subject of a rare “red top” warning from the Investment Association. On the same day, almost 30% of investors in Britain’s largest cinema chain failed to back a controversial new award scheme under which bosses could be awarded more than £200m in shares if Cineworld’s shares bounce back to pre-pandemic levels. But it went through because enough investors sided with the controlling Greidinger family – represented by the chief executive and his deputy chief executive sibling – who control 20% of the business.

Soriot’s case is the thorniest, the one that tests the principle of whether vaultingly high pay is acceptable under any circumstances. He warded off an unwelcome approach from US rival Pfizer in 2014, has overseen a shareholder return of close to 300% over eight years and presided over the development of a crucial coronavirus vaccine. It is the last of these that must not be allowed to cloud the fact that the vaulting multiples at the core of Soriot’s pay deal – his share bonus is set to rise from 550% of his £1.3m base salary to 650% – are unacceptable in an era when investors have pledged to pursue pay restraint.

The financial community appears to have failed a test of nerve when faced on the one hand with a textbook example of the excessive remuneration they have sworn to curb, but on the other a boss who had presided over a not-for-profit vaccine drive that will save thousands of lives in this country. It is in the crucible of these scenarios, though, that organisations committed to change will prove whether they really want to pursue it. In the event, the higher principle of tackling excessive pay was ditched.

And so those committed to fair executive pay outside pension and investment fund boardrooms must continue the fight. Last week the High Pay Centre, which campaigns against excessive executive pay, wrote – along with trade unions representing 3 million workers – to urge 60 of the biggest investors in UK companies to vote against pay awards for executives that are far in excess of average workers’ pay.

The aim was to highlight the importance of pay ratio disclosures, which have been mandatory in annual reports since 2020.

Luke Hildyard, executive director of the High Pay Centre, says government also needs to do more.

He wants to see: worker representation on boards and remuneration committees made mandatory for all major companies; reform of the Companies Act to end the primacy of shareholders and give equal priority to workers, consumers, wider society and the environment; and strengthened trade union rights and collective bargaining, because there is strong evidence of correlation between the decline of trade unions in UK and increases in excessive executive pay and wider pay ratios.

Last week showed that strong words from advisory groups and some principled investors are not enough. It is time to listen to recommendations such as those of the High Pay Centre.

BT’s sporting life is low priority when the UK needs better broadband

On the same day that BT unveiled plans to boost by a quarter its £12bn spending on rolling out next- generation broadband across the UK, the telecoms giant received notification of its latest billion-pound bill for TV rights from the Premier League.

BT spent most of the past decade dragging its feet and under-investing in the nation’s broadband network, instead starting what has become a £5.5bn TV sports rights battle with Sky. Erasing the UK’s embarrassing status as a global laggard in fibre-optic broadband has become a national imperative, indeed a Boris Johnson election pledge, and the cost of BT’s foray into sports TV has left bosses increasingly red-faced.

While the freeze in the £975m cost of the next three-year cycle of Premier League rights is a good deal for BT, the announcement came, uncomfortably, just as the company revealed that annual payments to close its huge pension deficit will have to increase to more than £1bn until 2024.

Faced with a mounting infrastructure bill, the company looked for a partner to foot half the £3bn cost of extending the full-fibre rollout by 5m premises – to 25m by 2026. However, the move didn’t wash with investors, who would rather see cash funnelled into dividends instead of capital expenditure: almost £1bn was wiped off BT’s market value following the announcement.

All of which piles pressure on the company to seal a deal with a partner to help pay the sports rights bills at BT Sport. BT chief Philip Jansen has said it is “very possible” the company will continue to go it alone, and that BT Sport is now profitable. But with costs mounting as the company shifts focus back to its core telecoms business, BT Sport, which has run up £2bn in losses and has a customer base of just a few million, is surely facing the final whistle.

Sun-starved Brits give travel bosses hope

The rush to book a holiday in the past few days suggests this is a nation of gamblers: people were splashing out on flights and hotels, not to mention expensive PCR tests, all on the promise of getting abroad – even before the Portuguese government made an 11th-hour decision to let the Brits in.

Some would-be holidaymakers appear to have been unaware, in the dash to “save their summer”, that destination countries might have any say in the matter. Meanwhile airlines, punchdrunk after a year of groundings, changes and rebookings – and very reluctant refunds – appear to have simply filled their schedules and hoped for the best.

Nonetheless, the nod from Lisbon means that the grand – if limited – reopening of international travel can start on Monday.

More than 2.8 million Brits visited Portugal in the year before the pandemic, and should Spain and Greece not make the green list, quite a few more will be squeezing into the resorts of the Algarve this year. Of course, the more attentive tourist may have spotted that Portugal is still in an official “state of calamity”, and late-night glasses of fino and passionate fado performances may have to wait. But think of the sunshine.

Tui boss Fritz Joussen, from the safe distance of the company’s headquarters in Germany, chuckled last week at the idea of UK staycations ever being enough to satisfy British holidaymakers – pointing at the high cost, and the general paucity, of accommodation here. And he didn’t even mention the weather.

For the travel industry, frazzled though it is, last week will have been a heartening affirmation of its faith in pent-up demand. Customers are faced with uncertainty, Covid tests, long queues at immigration, high risk of cancellation and a pandemic that is still raging – but the bookings still come.

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