ABI letter 'warned of shareholder challenge to corporate excess'

• Investor group targeted the chairmen of remuneration committees

• Executive pay on the rise again after period of restraint

guardian.co.uk, Jill Treanor, Sunday 15 May 2011

The ABI has expressed concern over plans to pay Bob Diamond 20%
more than his predecessor as chief executive of Barclays. Photograph: PA

Influential City investors have demanded that major companies block big pay rises to top bosses even if economic conditions improve.

The warning was made in a letter apparently sent to boardroom directors as shareholders detected a new trend for executives to demand pay rises after the period of restraint sparked by the 2008 banking crisis.

The Association of British Insurers (ABI) targeted the chairmen of the remuneration committees, the boardroom committees that set pay, and said that its members – which control about 15% of the stock market – had asked it to monitor the level of salary rises. For a senior boardroom executive, the salary is an important benchmark as bonuses are paid out as multiples of this.

The letter spells out that investors will "robustly challenge unjustified changes" in the size of individual pay deals.

In a key passage, the ABI said that its "members continue to believe it is the duty of remuneration committees to set executive salary levels commensurate with the roles undertaken, but to do so with due regard to company performance, with sensitivity to pay and conditions elsewhere in the business, and with awareness of wider economic circumstances".

The letter was sent at the beginning of major companies' annual general meeting season, in which there have been a number of protest votes against pay deals. Xstrata, the FTSE 100 mining company, suffered a rebellion against pay awards that were seen as excessive by Pirc, the corporate governance consultants. The directors of the bookmakers Ladbrokes and William Hill and Pace, the set-top box maker, faced similar challenges.

The ABI refused to elaborate when asked to confirm the authenticity of the letter, which notes the "restraint among many companies over the past few years in relation to executives' salaries".

"This restraint has been welcomed by investors in light of the challenging economic conditions," it said.

A rise in salary approaching 20% for Bob Diamond, the chief executive of Barclays bank, relative to his predecessor John Varley, has already been noted by the ABI.

António Horta-Osório, the new chief executive of the bailed-out Lloyds Banking Group, has two salaries – his actual £1m salary and a £1.2m "reference" salary used to determine the size of his bonuses.

Shareholders will be asked to vote on his pay deal – the subject of an "amber top" alert issued to investors by the ABI – at Wednesday's annual meeting.

One institutional investor said: "There was always a danger that pay freezes over the past few years would tempt firms to ratchet up pay at a later date. Shareholders will only accept pay increases if it matches true and sustained performance."

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