A majority is a majority, but a rebellion of 40% against an executive pay policy is too large to be pinned solely on those brain-dead fund managers who outsource their thinking to proxy voting agencies.
At AstraZeneca some serious institutions, with Aviva Investors and Standard Life Aberdeen to the fore, clearly thought the company was pushing things too far by adding a potential £2m cherry on top of their chief executive, Pascal Soriot’s, already substantial pay package. The rebels had a point.
Yes, Soriot is a boardroom superstar thanks to AstraZeneca’s success in supercharging the development and production of the Oxford University vaccine for no profit. Communication with regulators went awry at times, and Soriot himself obviously wasn’t getting his hands dirty in the labs. But the boss, even when operating from Australia, is doing an excellent job of standing up to irritating and ungrateful EU commissioners, which is also part of the pandemic operation. And, amid it all, the company didn’t miss a beat on its day job and had time to spend $39bn buying the rare disease specialist Alexion, which looks a promising deal.
Yet exceptional effort in an exceptional year is roughly what one expects from a chief executive on Soriot’s pay package. In the last three years, his incentives have performed wonderfully and he has earned £13m, £15m and £15m, so is firmly established in the £1m-a-month category, which very few chief executives of FTSE 100 companies can say. Even for an international hero, it feels a decent whack.
The company’s claim was that “the world drastically changed in the last 12 months, and so did AstraZeneca”, and thus adjustments should be made outside the normal three-yearly cycle for tweaking pay.
That argument would have felt stronger if AstraZeneca was not already at the adventurous end by UK standards. Last year, Soriot earned 197 times the median pay among his workforce. And, critically, the new arrangement will take his variable pay – annual bonus plus long-term incentives – to 900% of his £1.33m salary. A few years ago 500% was regarded as high by FTSE 100 standards.
That precedent-setting detail helps to explain why the rebellion was so strong. Those fund managers who care about controlling boardroom pay inflation saw the risk of knock-on effects elsewhere. Loyalty to Soriot probably swayed a few doubters and helped AstraZeneca prevail, but the company did not need to pick a fight at this time – it gave Soriot a chunky rise a year ago.
Some real pay shockers (think Cineworld) have slipped through in recent months. If the wider message in the AstraZeneca vote is that fund managers are not all asleep, that would be no bad thing.
Seatbelts on for more stock market turbulence
Last Friday investors preferred to see a silver lining in a weak set of US unemployment numbers – only 266,000 jobs created in the month of April, against forecasts of 1m. If a lack of new jobs implied no inflationary wage pressures in the US economy, at least the stock market could take a few days off from worrying about rises in interest rates, ran the theory.
Inflationary pressures, though, come in many forms, and here is a piece of data that spooked the stock market on Tuesday: China’s producer prices index rose at an annual rate of 6.8% in April, up from 4.4% in March.
That is the highest level for three years and a sign, probably, that the boom in prices of raw copper, iron ore and other raw materials is finally feeding through to goods. The FTSE 100 index fell 175 points, or 2.5%, following other stock markets down.
The benign view says a flurry of higher prices is almost to be expected as the global economy reopens. In that case, central banks’ mistake would be to move too early and choke off recovery. Yet it is clearly also possible that we could be at the start of a big move on prices, with the next leg delivered by the Biden’s administration’s huge infrastructure programme. If so, the mistake would be to delay rate rises.
Do not expect quick or clear answers. Inflation data can give mixed messages for months. Do, though, anticipate more bumpy days for stock markets. Investors’ default assumption is to assume the US Federal Reserve will play nicely and look through the short-term signals. Life could quickly get ugly if there is any deviation from that assumed path.