Analysis: Second "Shareholder Spring" unlikely to bloom in Europe

While politicians and public have fulminated against lottery-sized pay awards in Europe's boardrooms, fund firms, which wield the real power, are less concerned by such excesses and unlikely to use new powers to revolt on remuneration.

Last year's so-called "Shareholder Spring" against bosses' salaries in Britain toppled few CEOs, and institutional investors typically prefer to keep battles with boards private.

"Generally there is a reluctance among UK and European shareholders to vote against management," said Louise Rouse, director of engagement with lobby group ShareAction.

A rapid rise in boardroom pay at a time of dwindling average incomes and soaring unemployment has made remuneration a hot political topic, particularly in Europe, where taxpayers face years of austerity to help pay for bank bailouts.

Germany's ruling coalition, facing an election in September, recently agreed to give shareholders binding votes on bosses' pay at listed companies, following the example of Britain and Switzerland, whose citizens this month forced public companies to give shareholders veto rights over executive salaries.

European Union member states and the bloc's parliament, meanwhile, have finished draft legislation that will impose the world's toughest limits on bankers' bonuses.

Unlike the United States, where the law limits investor access to top executives and therefore encourages public spats at AGMs, European investors can - and prefer to - voice their opposition behind closed doors.

And while the size of salaries and bonus packages paid to some executives has horrified the general public, investors are more concerned the award is in proportion with their returns.

"Our job as asset managers is not to serve as arbiters on what is fair and not fair in a societal context," said George Dallas, corporate governance director at F&C Investments.

"There is a risk that as pay becomes subject to a binding vote, this can crowd out investor attention on other important issues, like strategy, risk, board composition and succession."


Last year, a number of high-profile shareholder votes against pay forced the departures of some well-rewarded CEOs, including Sly Bailey of British newspaper group Trinity Mirror and Andrew Moss of British insurer Aviva .

But these were isolated revolts. Analyzing 300 AGMs from 2012, shareholder advisory firm PIRC said the average level of dissent against remuneration reports was 7.64 percent, compared with 6.4 percent in 2011.

Shareholders were also inconsistent in their attacks.

WPP , the world's biggest advertising company, suffered defeat over its pay policy in part because CEO Martin Sorrell was in line for a bonus of up to 500 percent of pay.

But only 11.8 percent of shareholders voted against oil firm BP's remuneration report, despite a maximum potential award for CEO Bob Dudley of 923 percent of base salary.

In Switzerland, where over two thirds of voters backed the referendum on executive pay - often referred to as "the Minder Initiative" because it was the brainchild of local businessman Thomas Minder - investors have traditionally shied away from taking on the "fat cat" issue.

Of the top 100 Swiss companies, 49 already gave shareholders a non-binding vote on the pay of executives, but investors there have not been eager to vote remuneration reports down.

No fewer than 99.6 percent of shareholders approved Roche's pay plans at this month's AGM, even though shareholder group Ethos said it was too lucrative and urged its rejection.

Some shareholder activists in Switzerland are doubtful that much will change even with the referendum. Under the proposals, Swiss pension funds will be forced to vote on pay and publish how they voted, but other managers of bundled investors' assets will not have to declare how they vote.

"I expect little trouble from the ranks of shareholders when the Minder-Initiative comes into law," said Roby Tschopp, head of Swiss activist shareholder group Actares.

Under legislation to be implemented this year, British investors can choose to keep their votes private, stirring concerns that popular anger over high pay is less likely to be translated into action in Europe's largest equity market.

"We're in favor of giving more power to shareholders, but we think it is essential those powers are used, and there is nothing in the package to ensure that they are used," said Rouse.

The European Commission is planning to introduce legislation this year giving shareholders a mandatory say on corporate pay in all 27 countries of the European Union.


Under the new law, UK companies will have to give a single figure of total pay for each director to make comparison easier.

"The key point is remuneration reports are now exceedingly long, and I'm not sure, at the end of it, shareholders come away with any greater clarity on whether the incentive schemes are an effective alignment and accountability mechanism," said Simon Wong, partner at Investor Governance for Owners.

To improve their focus on corporate governance, more fund firms are starting to collaborate, giving votes more weight.

"Shareholders are more aware of each others' views so our thinking is more aligned. Once that happens, you have more power behind you. We always did exchange views, but we are now much more aware of the need to flag concerns to one another if we want to see change," said Anita Skipper, corporate governance adviser at Aviva Investors Global Responsible Investment team.

Veteran businessman Mike Darrington, who ran British bakery chain Greggs for almost 25 years and now heads pressure group "Pro Business Against Greed" believes one of the best opportunities to cut CEO pay is when new people are hired.

"It is got to be a change in attitudes that gradually brings things down," he said.

So far, evidence of a revolution is patchy.

Man Group , the world's second largest hedge fund, is limiting cash bonuses to 250 percent of salary for top executives as part of a change in policy under new CEO Emmanuel Roman.

Swiss bank UBS , meanwhile, gave its new investment bank chief a $26 million golden hello even as it cuts 10,000 jobs.

At Barclays , while Antony Jenkins's annual base CEO salary of 1.1 million pounds is nearly 20 percent less than predecessor Bob Diamond's 2011 equivalent, he could still earn 6.5 times that in bonuses and long-term awards.

Mark Wilson was not given a golden hello when he joined Aviva as CEO last year, but his pay and shares package is similar to what Moss received before he was ousted in May.

Over the longer term, Darrington hopes reputational concerns will win the day.

"I do think most directors of public companies are inherently decent people and they are concerned about reputation," he said. "Nobody likes to be called a greedy pig."

(Additional reporting by Caroline Copley in Zurich; Editing by Will Waterman)