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British Shareholders Battle 'American-Style' Exec Pay

Upset by big salaries and severance packages, investors clash with directors at U.K. firms.

June 02, 2003|William Wallace | Special to The Times

LONDON — As corporate rebellions go, last Friday's annual meeting of HSBC Holdings remained a polite, very British affair throughout.

"Nothing personal, Mr. Aldinger," speaker after speaker said with a preface of apology to the drawn-looking American from Illinois, who kept kneading his hands as he sat at the end of the long row of directors up on stage.

The problem, the shareholders kept saying, was not Bill Aldinger's business skills, which they all agreed must be pretty good since banking giant HSBC had just paid $13 billion to buy his Household International Inc. consumer finance company in March.

What had them worked up was what they called his "American-style" executive pay package: a whopping $37 million over three years, if they could believe the numbers they read in the British press.

"You should ask what you can do for your company, not what your company can do for you," lectured one shareholder, with a nod to President John F. Kennedy.

"A British-style package would be ample to meet his needs," another told the board. American levels of compensation would lead to American levels of corporate greed, the shareholder went on, his voice rising. "And we don't want this to happen in Britain, do we?"

But it is happening, with many British shareholders getting increasingly edgy about what they regard as a corporate import from the United States that defies good business sense.

Egged on by a mainstream media campaign against corporate "fat cats," they have awakened from their customary complacency to turn this spring's season of annual general meetings into unusually raucous affairs. They have clashed with directors of companies as diverse as the troubled media conglomerate Reuters Group -- where a quarter of shareholders opposed the directors' remuneration package -- to television company Granada.

Shareholders' most significant victory came May 19, when they voted to reject pharmaceutical multinational GlaxoSmithKline's salary offer to its chief executive, Jean-Pierre Garnier. Anger was fueled in large part by a $35.7-million golden parachute Garnier would collect from what is Britain's third-largest company should he be fired.

Complaining the offer amounted to payment for failure, several institutional investors joined individual shareholders in either voting against the package or abstaining. Anger against Garnier's deal was almost universal, resonating even in the editorial suites of Britain's business and conservative press.

The vote by shareholders is not legally binding on Glaxo, but the embarrassment to its chastised board will not easily subside. Chairman Sir Christopher Hogg acknowledged that the company would now re-examine Garnier's contract, noting the directors had already appointed an independent auditor to make recommendations on remuneration by next year.

"The harsh fact is that U.K. shareholders do not like U.S.-style pay," said Alan MacDougall, managing director of Pensions Investment Research Consultants Ltd., which has been at the forefront of this spring's crusade. "And now that they've had a taste of activism, they like it. This is a fight that will only grow."

To be sure, shareholders of some U.S. companies also have been voting against executive pay packages at annual meetings this spring. At defense firm Raytheon Co. and at railroad Union Pacific Corp., for example, a majority of shareholders voted to request that management allow a shareholder review of certain executive severance packages. As with the Glaxo vote, the resolutions aren't binding on management.

The sudden emergence of a muscular shareholder ethos in Britain is a direct result of government regulations introduced this year requiring companies to disclose their remuneration packages and to put them to a company-wide vote.

The measures also coincide with continued weakness in the market: Britain's blue-chip FTSE-100 stock index is up just 2.7% year to date, while the U.S. Standard & Poor's 500 index is up 9.5%.

Poor share prices have stoked shareholder feistiness, with grumpy investors questioning why the generous arrangements for top executives appear immune to sluggish profit performance. Glaxo's share price, for example, is down about 30% in London since Garnier took the helm in April 2000

"The whole issue of payment for failure -- this culture of featherbedding people's pay -- has been growing and growing, and it's reached the point where it's putting business in disrepute," said Sir Archie Norman, an opposition Tory member of Parliament whose authority on the issue comes from his highly successful time as a modestly compensated chairman (by comparison) of the Asda supermarket chain in the 1990s.

"The [Glaxo] episode will not be the end of the matter," he added in an interview. "It should be a wake-up call to U.K. business."

Whether the business community sees that danger is an open question.

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