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Wall Street Journal, September 23, 2008 article


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SEPTEMBER 23, 2008

Pay for executives keeps soaring

U.K., U.S. holders fail to limit growth despite public anger

SHAREHOLDERS IN the U.K. and U.S. are failing in most cases to restrain rising executive pay, according to voting advisers, even though the public uproar over remuneration at banks and other financial services firms has intensified since the onset of the credit crunch.

The U.K.'s governing Labour Party has begun to focus on the issue. In a speech to the Labour Party's conference this weekend, Prime Minister Gordon Brown referred to "elements of the bonus system that are unacceptable." And Adair Turner, chairman of the U.K.'s Financial Services Authority, said in a television interview with Sky News Monday, "What is appropriate for regulators to to ask searching questions about the nature of people's remuneration and to ask questions of institutions as to whether they are paying out bonuses before they are really sure whether the profits are really there."

Executive compensation in the U.K. has been rising rapidly. Total potential remuneration for directors at the U.K.'s top companies -- those with market capitalizations over 10 billion, or about $18 billion -- jumped 22% to an average of 4.6 million in their most recent fiscal years, most of which ended March 31, according to the voting advisory firm Manifest's annual pay survey. The report, published this month, covers 816 companies.

For comparison, the average annual rate of earnings increase for all workers in the U.K. was about 4% as of March, according to the government's Statistics Authority.

Senior staff at financial services companies also tend to be paid significantly more than the average for businesses of a similar size, according to Manifest's figures. A midsize U.K. financial firm with a market capitalization between 300 million and 1 billion would tend to pay its senior staff 42% more than the average for all companies of that size, for example.

Manifest also tracks the voting patterns of institutional shareholders. Its 2008 report on that topic is currently being finalized, but Chief Executive Sarah Wilson said it was likely to show investors had generally been supportive of executives' pay packages.

"We are seeing small pockets of resistance," she said, "but in general there is a big discrepancy between the angst that is being expressed in public and what is happening at the ballot box."

Ms. Wilson said greater foreign ownership of U.K. stocks could be partly to blame, with U.S. mutual funds, for example, obliged to register votes for all their shareholdings. "An unintended consequence of that can be an uninformed, automatic vote in support of management," she said.

The pattern is similar in the U.S., where despite outrage at perceived executive excess as the credit crunch has hit the economy, only a few companies have been pushed by shareholders to adopt "say on pay" resolutions giving them a right to vote on compensation.

Paul Hodgson, senior research associate at the U.S. governance-research company Corporate Library, said in June, "That's certainly surprised some of the sponsors of say-on-pay resolutions, who felt that with the economy in a downturn where chief executive pay continues to rise even as company results keep going down, you have a situation where you would expect the flashpoints of shareholder irritation to be exacerbated."

■  From Financial News at


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