The presence of the current financial crises has made investors more Essay

The presence of the current financial crises has made investors more determined in handling excess remunerations - Essay Example Introduction A vote against remuneration is significant if it receives less than 75 percent of the shareholders support. Thus, votes have been on the use recently in protesting against pay increases that are insufficiently linked to performance. For instance, Section D of the U.K corporate governance code sets out remuneration guidelines for both the executive and non-executive directors. According Tricker (2012) section D.1, â€Å"the remuneration should be sufficient enough to motivate and attract directors, but a company should avoid paying more than is necessary for this purpose. A significant proportion of the executive director’s remuneration should be structured so as to link rewards to corporate and individual performance.† Section D.1.4 of the U.K corporate governance states that it is the responsibility of the remuneration committee to consider compensation commitments of their directors in the event of early termination. MM & K report is recent and its releas e fueled investor’s activism in fighting against pay rise. The report revealed that the medium total pay rise for FTSE 100 CEOs is 10 percent and one quarter of the CEOs in this index had 41 percent increment on their pay. Research indicates that the size of pay that a FTSE director has increased unexpectedly. For instance, between years 1990 and 2000, the remuneration of a FTSE chief executive went up by 13.6 percent annually from ?1 million to ?4.2 million. In year 2011, FTSE remuneration rose by 11 percent. The current average pay rise in the market is 1.7 percent. In 2012, there have been 24 similar incidents in total all over Europe compared to 2011 which had 25 cases. The legislation has been carefully following these protests, and the pending U.K legislation shows that by year 2012, pay plans will have to pass the majority vote or shareholders will have the authority to reject management’s remuneration proposal. New disclosure rules are also in the process of co ntemplated purposely to help the shareholders in making a decision. For example, in France the new socialist government is contemplating to impose pay limits on executives in companies which own a majority stake. The pay will be 20 times that of the lowest paid employee in the company thus leading to substantial pay cuts. Also, the contemplated Legislations will exert pressure on companies where the government owns share but not a controlling share. CEO’s of companies such as AstraZeneca, Aviva, trinity Mirror is some of directors who had been forced to resign over pay and performance related problems even before news broke. WPP Group During the 2012 annual general meeting, approximately 59 percent of the WPP investors voted against the company’s remuneration report and the CEOs pay package of ?6.8 million. In the previous year, over 40 percent of the shareholders had a ‘no’ vote on pay and this prompted the remuneration committee to reach out the sharehol der before the 2012 AGM. After the shareholders vote the chairman of the group said, â€Å"