Shareholder anger simmers worldwide over bankers' pay

By Steve Slater

LONDON, May 29 (Reuters) - Investors owning almost 6 billionshares rejected the pay plans of 10 of the world's biggest banksin recent weeks as anger over excessive bonuses reached recordlevels in Britain and jumped sharply from a year ago in theUnited States.

Hefty bankers' bonuses have been blamed for contributing tothe 2008/09 financial crisis and banks have since changed paystructures, but many politicians, shareholders and members ofthe general public say the industry has not gone far enough.

"While some changes in behaviour are taking place, these arenot deep or broad enough. The industry still prizes short-termprofit over long-term prudence, today's bonus over tomorrow'srelationship," Christine Lagarde, the managing director of theInternational Monetary Fund, said this week.

Shareholder opposition to executive pay at five European andfive U.S. banks averaged 17.5 percent at their annual meetingsin April and May, according to Reuters' analysis of votes.

That was up from an average of 9.5 percent across the same10 banks last year, but was slightly down from the recordrebellion of 19.2 percent of votes in 2012.

Opposition at British banks this year hit record levels, ledby 41 percent of shareholders at Standard Chartered voting against its executive pay plan. At Barclays morethan one-third of voters failed to back its plan, includingabstentions.

Eugenia Jackson, head of governance at F&C Investments,which has 82 billion pounds in assets under management and votedagainst remuneration reports at Barclays, HSBC, UBS and others, said lower revenues and profits in investmentbanking and tougher capital requirements had put even morescrutiny on how banks plan to adapt pay levels.

"It's an even bigger concern than it was before because weare now coming to the realisation that the old business modelshave to change, and as a result they have to rethink thecompensation," Jackson said.

"Say on pay" votes on bank executives' compensation are notbinding, although there is growing pressure to change that.

Some banks held binding votes on some aspects of pay policythis year and investors at UK banks had to vote on a separatepay policy that set out three-year pay plans. It passed at allbanks, but was rejected by 21 percent of HSBC shareholders who voted.

Opposition above 5 percent on proposals recommended by acompany are typically regarded as a protest vote, with anythingover 10 percent seen as significant. During Britain's"shareholder spring" in 2012, when investors became more vocalwith criticism, opposition to remuneration reports averaged 7percent across the top 350 UK companies.

Investors are typically most concerned about the pay ininvestment banking businesses, where bonuses are highest andform a big share of overall expenses.

At the five U.S. firms with major investment banks,including JPMorgan and Goldman Sachs, oppositionto compensation reports averaged 13.3 percent, up from 9.1percent last year but below 2011 and 2012 levels.

There were significant protest votes at Switzerland's UBSand Credit Suisse, although the scale of oppositiondid not reach the levels seen in 2012 and 2010.

Investors raised concerns about various issues around pay,including awards to chief executives, the structure of new"allowances" for thousands of staff and whether targets werechallenging enough, but the main issue remained that high pay isunjustified while returns are sluggish, and a bigger share ofrevenues should go to shareholders via dividends.

"We don't think there's a good case for paying high bonuseswhen banks are still reporting a return on equity below theircost of capital. We are happy for management and employees to bepaid well, as long as shareholders get the return on theirinvestment," Jackson said.

Banks were not alone in seeing shareholders flex theirmuscles this year and pharmaceuticals, mining and other firmsalso came under fire.

Politicians are encouraging investors to hold companies moreto account, although major investors often prefer to work behindthe scenes with firms and avoid public disagreements.

Standard Life Investments joined F&C in publiclyopposing Barclays' remuneration report, and it also opposedHSBC's proposal on pay policy.

Often it is small shareholders who make the loudest noise,accusing boards of failing to look after their interests.

"It's jam tomorrow for the shareholders, but champagne todayfor the investment bankers," Anthony Lee, a small shareholder inBarclays, said to applause at the bank's fiery London meeting. (Editing by Peter Graff)