Jeff Fairburn may have been pushed out over his £75m bonus, but don’t expect big change over excessive pay

“Big investors call for crackdown on executive bonuses,” declared the Financial Times.

Watch out. The next thing you know, people will be predicting widespread investor “rebellions”, or a “stormy AGM season”. They might even hark back to the so-called “shareholder spring”. The media ludicrously likened a couple of fund managers who cast an advisory vote or two against a handful of corporate remuneration reports to the very real revolutions then taking place in the Middle East in which people actually died.

Besides, we’ve heard talk of restive institutional investors before and it never seems to amount to much.

Is the next AGM season really going to be any different to the current inaction, which essentially allows corporate looting by a gilded circle of wealthy CEOs and their chums?

The Investment Association, a trade body, reportedly sent a letter to the chairs of Britain’s 350 biggest companies, wagging a stern finger at them. It contained a list of demands, including that companies require bosses to hold the free shares they get handed for at least two years after they leave their posts, and increase the companies’ power to claw back bonuses from CEOs who later muck things up. Which happens quite frequently.

The letter also warned of a “growing reputational risk” to companies from excessive payments like the £100m (later reduced to £75m) share-based bonus gifted to Jeff Fairburn, the former boss of Persimmon.

Strong(ish) stuff. But this is hardly the first such warning to have been issued by big City of London investors to corporate Britain. The trouble is that they’ve never really been prepared to back up their words with their votes where it counts.

Anyone who invests money is repeatedly reminded that past history is no guide to future performance. But it’s still worth considering the how the Investment Association’s members, and others, reacted to the largesse showered on Fairburn.

The optics of it were obviously terrible, particularly given that Persimmon specialises in building homes for first-time buyers. You know, the people who scrimp and save for the sky-high deposits required to purchase bricks and mortar in Britain’s overheated property market.

PIRC, which advises shareholders on voting decisions, highlighted the problems with the bonus scheme back in 2017, long before Fairburn became corporate public enemy number one.

Yet at the AGM in April of that year, 90 per cent of those who bothered to vote (and a lot didn’t) still backed the company’s remuneration report.

This year, after Persimmon’s name had become inextricably linked to “corporate looting” in the public mind, and the chairman and the chair of the remuneration committee had fallen on their swords, 51 per cent of its shareholders went ahead and waved it through.

It makes you wonder what it would take for big City fund managers to say no.

My friends at Share Action, the movement for responsible investment, found just one example of a defeat of a company’s remuneration policy in the last year. Ironically it was at Centamin, a gold miner.

Votes on pay policy are only held every three years and they actually count by forcing directors to go back to the drawing board.

When it comes to the advisory votes on remuneration reports that are held annually there were five defeats: at Royal Mail, Playtech, Petropavlovsk, Immarsat, and Northgate. But votes like that are the equivalent of getting a mild ticking off, together with a place on the government’s corporate naughty step.

But votes like that are the equivalent of getting a mild ticking off, together with a place on the government’s corporate naughty step, that was set up to publicise businesses that fall afoul of shareholders.

In fact any vote against any company resolution of 20 per cent or more gets you a place on the step. There were 14 of those on remuneration policies, and 42 on remuneration reports.

Trouble is, boards have a nasty habit of ignoring such dissent. They will continue to do so for as long as meaningful defeats are vanishingly rare and the appalling behaviour at the likes of Persimmon is given a pass.

It’s been said time and time again: there is no real evidence that bumper pay packets for CEOs do anything towards improving companies’ economic or financial performance. There is no real evidence to justify any of the other excuses tabled for them either. They include the alleged international market for CEO-calibre people, or that they’re all stupefyingly awesome, or that they just won’t get out of bed without a million or two to “motivate” them.

As Share Action points out, there is evidence to show that paying workers lower down the food chain the currently voluntary Living Wage, which is set by the Living Wage Foundation, can have a very meaningful impact on corporate performance. It reduces absenteeism, results in higher quality work and improves staff retention.

In failing to address either the former or the latter, institutional investors are shooting themselves in the foot. They’re also harming those of us who have money with them, via pensions or ISAs for example.

Perhaps it’s time we took a rather closer look at the sort of salaries the City’s money managers, who control the votes, are on. Perhaps that’s something for politicians and regulators to think about and address.