Pay Consultants Accused of Conflicts of Interest: Advisers Provided Other Services
Study Reveals Bumper packages sparked 'shareholder spring'
From Guardian (UK) (June 5, 2012)
The consultants behind the bumper executive pay packages that triggered the "shareholder spring" have opened themselves up to accusations of conflicts of interest by receiving additional fees from the companies they advise.
An analysis by the Guardian shows that almost 70% of pay consultants sold supplementary services to companies whose remuneration committees they had guided. The figures emerged following critical comments about the sector from former City minister Lord Myners and from the High Pay Commission, which in November highlighted concerns that consultants "rachet up" executive pay.
Of the 50 most valuable UK public companies, 33 hired pay consultants who also sold services to other parts of the same company during 2011. The list includes businesses that attracted some of the greatest attention during the "shareholder spring", in which investors began rebelling against pay awards.
They include the pharmaceuticals group AstraZeneca, which employs Deloitte to advise its remuneration committee, even though the accountants also provide "taxation advice and other specific non-audit services to the group"; Barclays, which hired Towers Watson, a specialist consulting firm which also provided the bank with "pension advice as the appointed adviser to the trustee of the UK retirement fund"; and Xstrata, which employs the Hay Group, another consulting firm which sold additional pay data to the mining group.
The annual report of AstraZeneca stated it "judged that there were no conflicts" in its hiring of Deloitte. Barclays’ annual report said it disclosed "any potential conï¬?icts of interest the advisers may have" to the remuneration committee. Xstrata said there was "no conflict of interest" with the hiring of its pay consultant.
However, the High Pay Commission was "concerned that remuneration consultants have a direct conflict of interest where they provide executive pay advice and cross-selling for other business". It added: "While the voluntary code for remuneration consultants specifies that they should not cross-sell services, anecdotal evidence and interviewees the High Pay Commission met suggest this practice is widespread."
The Guardian’s figures also show that the pay advice received by the top 50 companies is coming from an extremely concentrated market, with Deloitte advising 17 of those firms - including 10 of the top 20 - and Towers Watson being employed by a further 11. Kepler and Aon Hewitt New Bridge Street advised six and five of the top 50 companies respectively last year.
While much of the investor ire this spring was directed at executives enjoying pay rises that outpaced share price gains, providing the advice behind those packages has also proved lucrative. According to Towers Watson’s accounts, its highest paid director last year got pounds 693,000 a 13% pay rise, while its board earned an average of pounds 332,000 each. Five years ago the company paid its top earning director pounds 364,000 and its average board member pounds 270,000.
A Towers Watson spokesman said: "Our advice is always going to be the same - objective, fact-based, impartial and frank. It is for this reason remuneration committees seek our advice regardless of whether we play a broader role or not."
Deloitte did not return phone calls.
However, just as revolts over executive pay seemed to affect sectors indiscriminately, there seems no obvious pattern as to which pay consultant ended up in the middle of the controversy.
Of the notable investor revolts this year, Deloitte acted for Aviva and AstraZeneca, Towers Watson acted for Barclays (although it has now been replaced) and William Hill, Kepler was employed by Trinity Mirror and Hewitt New Bridge Street advised Premier Foods.
Proportion of pay consultants who also sold other services to client firms, as revealed by the Guardian analysis
Number of top 50 FTSE firms that are advised by just two pay consultants, Towers Watson and Deloitte
Pay rise awarded to the highest paid director at consultant Towers Watson, which took their pay to pounds 693,000
Posted: June 2012
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