Investors losing patience with sky-high CEO pay
In US sports it is agreed “if offence is strong, the defence takes care of itself”. Similarly, strong share price performance has protected executives from challenges to their high pay. That is changing in a US where steep remuneration has started to prompt the regular investor censures already common in Europe.
This year 25 companies’ shareholders have approved executive pay packages with 75 per cent or less of the vote, up from 16 last year, according to data from Farient Advisors. Such rebukes have occurred at prominent companies such as General Electric, IBM and Starbucks.
At Activision Blizzard, investors usually approve boss Bobby Kotick’s big packages, and he has generally delivered big returns. Shares in the video game business have nearly tripled since the start of 2016.
Yet this year, shareholder approval in a non-binding say-on-pay vote appears in doubt. On Wednesday Activision oddly allowed another week of voting on this measure, despite concluding its annual meeting.
Debate is understandable. Kotick’s 2020 “long-term performance incentive” has hit US$124 million according to company filings. Activision blames the windfall on the share price surge.
Institutional shareholders are increasingly resistant to large CEO pay packages. These have edged up through benchmarking against peer group averages that ensures everybody below the mean can claim a pay rise. Even shareholders who have profited greatly are losing their previous deference to management.
A year ago, just over half of voting shareholders approved the pay proposal at Activision. That prompted the board to cut Kotick’s base salary in half, to less than US$1m. Additionally, it trimmed share grants.
The maximum payout of Kotick’s latest long-term award is a paltry US$32m. An activist organisation, CtW Investment Group, argues that the changes in Kotick’s contract extension really only restrain his pay for one year, 2022. The company can then enrich Kotick at will.
Activision believes that it has made good faith efforts to respond to investor concern. Perhaps, but years of shareholder frustration and the shift in perceptions of pay will be tough to overcome.