Media Briefings

EXECUTIVE PAY IN THE UK: Even after the crisis, shareholders have failed to curb excesses

  • Published Date: February 2014

Despite public calls for shareholders to get tough on executive pay, a new study of the UK’s highest paid company directors reveals that shareholders are overwhelmingly inclined to approve the pay packets of top directors, just as they were before the crisis.

According to the report by Dr Ian Gregory-Smith and colleagues, published in the February 2014 issue of the Economic Journal, shareholders have objected to just 14 pay proposals since the crisis – that’s less than 1% of all pay proposals.

The researchers set out to explore whether the so-called ‘shareholder spring’ – an apparent increase in shareholder activism after 2008 – has materially altered the operation of ‘say on pay’.

To do this, they analysed shareholder voting, company performance and directors’ pay in the UK’s 350 biggest companies listed on the Financial Times Stock Exchange between 2003 and 2012. During this period, each company was required to offer shareholders a non-binding vote on the pay packets of company directors (though since October 2013, pay resolutions must receive 50% approval to proceed).

Among the findings:

· A greater number of votes were cast either ‘against’ or ‘abstain’ on directors’ pay proposals after the crisis relative to the immediate period before the crisis.

· But these additional dissenting votes were to be expected given the decline in the performance of companies. Moreover, the number of dissenting votes did not rise beyond the level previously observed in 2003.

· Increasing the pay of chief executives exerts a relatively small impact on the votes cast against a pay resolution. When the chief executive’s pay increases by 10%, shareholders only object by an extra 0.2 percentage points (when 50% against is required for the proposal to be voted down).

The authors conclude that shareholders are voting in the same way as they were before the crisis given the observed levels of pay and company performance.

Dr Ian Gregory-Smith of the University of Sheffield comments:

‘It is unlikely that giving a vote to shareholders on directors’ pay has caused any harm. But our evidence would suggest that shareholders are reluctant to cast their votes against.

‘Regulators hoping for a resurgence of shareholder engagement will be disappointed.’

Professor Steve Thompson of Nottingham University Business School adds:

‘It appears that under normal circumstances most shareholders are unwilling to rock the boat in the face of rising rewards for chief executives. Only where media pressure develops over some particularly egregious self-serving behaviour do we observe any serious challenge to the status quo.

‘But it is entirely possible that the threat of a withdrawal of support by institutional investors does have some prior impact on the proposals of the remuneration committee.’

Professor Peter Wright of the University of Sheffield says:

‘The government has promoted shareholder activism as a key mechanism for restraining corporate excess and securing the long-term health of the UK’s biggest firms.

‘But our results suggest that any expectations that the recent changes to give shareholders a binding vote on directors’ pay will have a big impact may be sorely disappointed.’


Notes for editors: ‘CEO Pay and Voting Dissent Before and After the Crisis’ by Ian Gregory-Smith, Steve Thompson and Peter Wright is published in the February 2014 issue of the Economic Journal.

Ian Gregory-Smith and Peter Wright are at the University of Sheffield. Steve Thompson is at the University of Nottingham Business School.

For further information: contact Ian Gregory-Smith on +44 (0) 114 222 3317 (email: or Romesh Vaitilingam on +44-7768-661095 (email:; Twitter: @econromesh).