‘Fat Cat’ Pay – Part 1

So, as my dissertation is focussed solely on what has been termed ‘fat-cat’ pay I thought it appropriate to kick-off proceedings with a relatively short and, at this stage, fairly low-level-researched ‘rant’ on w
Unless you’ve resided under a rock recently it will not be breaking news that shareholders and employees alike have greatly condemned the astronomical sums of money that have been handed to senior executives figures of public limited companies (PLCs). The elevated bad publicity of this situation is owed to two factors – low shareholder dividends and employees at the bottom end of the pay scale losing their jobs as PLCs try desperately to cut the operational costs and deal with tough economic times.hat I feel to be the issues.

We’ve seen shareholder revolts for several companies, including market giants Aviva and Barclays. But, this is where the problem begins. The current legal position allows for shareholders to vote against remuneration reports of directors but this vote is not binding. Effectively, this allows directors to ignore any concerns that directors, technically owners of the business that the said directors control, with regards to the level of remuneration.

The UK Department for Business Innovation and Skills has declared that there is potential in making shareholder votes binding. However, is this really going to work? Studies by various scholars and economists, including Martin Conyon, suggest that the shareholder patterns of many UK PLCs are not suited to such binding votes Most shareholders are here today, gone tomorrow, and back the following Monday. Shareholders is in the majority about driving personal profit as opposed to owning shares in a particular organisation. Would a more appropriate course of action be to give a stronger say to employees of PLCS, individuals with a stronger and more permanent connection to the organisation.

Also, is it right to condemn the vast levels of pay? A century ago, in the days of Re Brazilian Rubber Plantations, directors were seen as mere fund raisers with few duties beyond gathering shareholder capital. The situation is very different today, in a global economy with competition for skill being fierce. Equally, shareholders duties have expanded vastly – stakeholders are now made up of not only shareholders, but creditors, employees, the environment and many other constituents. Equally, the disqualification regime, under the Company Directors Disqualification Act 1986, presents a further danger to directors which, without the high-level rewards of vast remuneration, may deter many talented individuals from acting as directors of PLCs.