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London - Investors owning almost 6 billion shares rejected the pay plans of 10 of the world's biggest banks in recent weeks as anger over excessive bonuses reached record levels in Britain and jumped sharply from a year ago in the United States.
Hefty bankers' bonuses have been blamed for contributing to the 2008/09 financial crisis and banks have since changed pay structures, but many politicians, shareholders and members of the general public say the industry has not gone far enough.
"While some changes in behaviour are taking place, these are not deep or broad enough. The industry still prizes short-term profit over long-term prudence, today's bonus over tomorrow's relationship," Christine Lagarde, the managing director of the International Monetary Fund, said this week.
Shareholder opposition to executive pay at five European and five US banks averaged 17.5% at their annual meetings in April and May, according to Reuters' analysis of votes.
That was up from an average of 9.5% across the same 10 banks last year, but was slightly down from the record rebellion of 19.2% of votes in 2012.
Opposition at British banks this year hit record levels, led by 41% of shareholders at Standard Chartered voting against its executive pay plan. At Barclays more than one-third of voters failed to back its plan, including abstentions.
Eugenia Jackson, head of governance at F&C Investments, which has £82bn in assets under management and voted against remuneration reports at Barclays, HSBC, UBS and others, said lower revenues and profits in investment banking and tougher capital requirements had put even more scrutiny on how banks plan to adapt pay levels.
"It's an even bigger concern than it was before because we are now coming to the realisation that the old business models have to change, and as a result they have to rethink the compensation," Jackson said.
"Say on pay" votes on bank executives' compensation are not binding, although there is growing pressure to change that.
Some banks held binding votes on some aspects of pay policy this year and investors at UK banks had to vote on a separate pay policy that set out three-year pay plans. It passed at all banks, but was rejected by 21% of HSBC shareholders who voted.
Opposition above 5% on proposals recommended by a company are typically regarded as a protest vote, with anything over 10% seen as significant. During Britain's "shareholder spring" in 2012, when investors became more vocal with criticism, opposition to remuneration reports averaged 7% across the top 350 UK companies.
Investors are typically most concerned about the pay in investment banking businesses, where bonuses are highest and form a big share of overall expenses.
At the five US firms with major investment banks, including JPMorgan and Goldman Sachs, opposition to compensation reports averaged 13.3%, up from 9.1% last year but below 2011 and 2012 levels.
There were significant protest votes at Switzerland's UBS and Credit Suisse, although the scale of opposition did 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 were challenging enough, but the main issue remained that high pay is unjustified while returns are sluggish, and a bigger share of revenues should go to shareholders via dividends.
"We don't think there's a good case for paying high bonuses when banks are still reporting a return on equity below their cost of capital. We are happy for management and employees to be paid well, as long as shareholders get the return on their investment," Jackson said.
Banks were not alone in seeing shareholders flex their muscles this year and pharmaceuticals, mining and other firms also came under fire.
Politicians are encouraging investors to hold companies more to account, although major investors often prefer to work behind the scenes with firms and avoid public disagreements.
Standard Life Investments joined F&C in publicly opposing Barclays' remuneration report, and it also opposed HSBC'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 today for the investment bankers," Anthony Lee, a small shareholder in Barclays, said to applause at the bank's fiery London meeting.
