Investors cut the fat cats down to size

SOME of the biggest beasts in the corporate jungle are busy pretending to be pussycats. Not that they have changed their spots, of course. It is simply that they are beginning the annual round of consulting shareholders to test exactly how much they can load their pockets with cash and share options next year.

Sensible remuneration committees will be approaching shareholders with a degree of trepidation. Investors put down a robust marker at annual meetings this year that they would no longer simply nod through salary increases and share option awards that are not related to corporate performance.

Nor will they accept two-year service contracts.

The most spectacular line revolt came at the GlaxoSmithKline annual meeting, when the board's pay and perks package for chief executive Jean-Pierre Garnier was actually voted down by shareholders.

Other potentially inflammatory proposals, such as that on offer to Prudential boss Jonathan Bloomer, were withdrawn for fear that investors would find them even more distasteful at a time when bonuses for policyholders were being cut savagely.

But many of our largest companies suffered substantial votes and abstentions against their pay proposals.

Votes of 20, 30 and 40% against were routine compared with previous years in which a singlefigure rebellion was regarded as remarkable.

Though it is still early in the process - and Glaxo's remuneration committee has not yet started banging at the doors of its investors --several senior fund managers have told me they reckon the lessons from those bloody noses have been taken on board.

This may be a little difficult to swallow in view of the recent spectacle of TV moguls Michael Green and Charles Allen being given seven-figure bonuses.

They have inflicted much on shareholders in recent years, even if they have partly salvaged their reputations by putting together the merger of Carlton and Granada to create ITV plc.

But the Pru, for one, has decided the climate is not right to resubmit its pay proposals to shareholders. And others, according to some of the major investors now being consulted, have tried to accommodate objections to share option schemes that have insufficiently demanding performance criteria. It may make for a far less colourful annual meeting season next year.

But if investors have succeeded in encouraging some remuneration committees to align executive rewards more closely with corporate performance, they will have done us all a great service.

The recent report on the way forward for the financial sector by Sir Richard Sykes, former boss of GlaxoSmithKline, called for companies to police each other and report suspected dodgy dealing or mis-selling.

It is an admirable idea and one that financial companies have an interest in adopting - after all, the entire sector is besmirched when the likes of a precipice bond or endowment scandal erupts.

But would-be whistleblowers complain that the Financial Services Authority is less than receptive to complaints lodged by one company about a rival. The FSA denies any such hostility, of course. And clearly it cannot risk launching inquiries based on malicious allegations that might have been made for unscrupulous commercial reasons.

But practitioners in the financial sector are best placed to spot malpractice by rivals. And anything that can be done to improve standards and the reputation of financial services companies should be encouraged.

Following disclosures about market timing abuses in America, FSA boss Callum McCarthy has made a welcome start in his new job by appearing to want to work in partnership with fund managers to ensure a similar scandal is not taking place here.

He must extend this co-operative approach to encourage whistleblowing rather than turning a blind eye - or worse, discouraging it.

LORD Owen, a former Foreign Secretary, is believed to earn the thick end of $250,000 a year as chairman of Yukos International and has been gifted a handy number of shares in the Russian oil giant.

Yet while Yukos supremo Mikhail Khodorkovsky, Russia's richest man, has been arrested on corruption and tax evasion charges and the $11 billion merger of the group with rival Sibneft has collapsed, Owen is nowhere to be seen - or heard.

The roll call of politicians whose reputations are tainted by controversial boardroom posts is less than illustrious. Owen must beware that his name does not join the list.