Pay consultants under fire for poor advice

Bad remuneration advice pays, new evidence finds
Bad remuneration advice pays, new evidence finds

Concern in the City is mounting over the “moral hazards” faced by remuneration advisers in clashes between companies and their shareholders over executive pay, as new research shows that the same firms are often involved in awarding generous packages.

The accountancy firms Willis Tower Watson and PwC gain a higher proportion of fees than rivals from advising companies accused of having poor governance on pay by the proxy voting agency Manifest.

According to an analysis of the FTSE 350 obtained by the Telegraph, Willis Towers Watson gained 53pc of its total of £2.7m in remuneration fees last year from companies rated poor for pay governance by Manifest.

Willis Towers Watson has been involved in some of this AGM season’s most controversial pay packages, including the £14m paid to BP chief executive Bob Dudley, which was humiliatingly voted down by shareholders.

The firm provided the benchmarking information that BP used to justify the award despite the slide in its share price and financial performance last year.

It also received £87,190 for advising on Sir Martin Sorrell’s record-breaking £70m package, which shareholders are due to vote on in the summer.

Sir Martin Sorrell, chief executive of the WPP advertising group
Sir Martin Sorrell, chief executive of the WPP advertising group

PwC meanwhile made half its fees, or £1.9m, from companies scoring D, E or F on the proxy voting agencies A to F scale of remuneration standards.

Of the five most active advisers, New Bridge Street was least reliant on companies with poor pay governance. Only 29pc of its fees were paid by remuneration committees that have triggered Manifest’s concerns.

The agency’s grades are based on a range of factors including transparency of incentive packages and the strength of the link between pay and performance.

Average grades have tumbled recently as companies have had to disclose more about their pay policies.

Sarah Wilson, Manifest’s chief executive, said the research raised questions on pay. As well as correlations between certain advisory firms and poor governance, the figures show a correlation between poor pay governance and higher fees for advisers.

Ms Wilson said: “There does appear to be a moral hazard associated with poor advice – it seems to pay rather better than good advice. It may be that there is a premium for advice where there is a dispute with shareholders. But there is not enough transparency.”

Ashley Hamilton Claxton, corporate governance manager at Royal London, said: “We are concerned that some companies are paying too much for bad advice. Now more than ever remuneration committees need to ensure they are applying appropriate discretion and not over-relying on consultants’ complicated pay models.”

Another governance expert at one of the City’s largest AGM advisers to institutional investors, who declined to be named, claimed there was a “particular issue” with Willis Towers Watson.

A spokesman for PwC said the firm was known for providing advice in tricky situations, which may be why it is correlated with what Manifest sees as poor governance.

The higher fees for companies with governance challenges were due to greater time required by advisers, PwC suggested.

Willis Towers Watson declined to comment.

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