The recent tirade by Jamie
Dimon of JP Morgan directed at shareholders for voting against executive pay
rise as advised by proxy advisory services brings to focus the role and or
activities of these advisory services and what they can accomplish in a country
like Nigeria where corporate governance is at its infancy.
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| James Dimon, Chairman/CEO, JP Morgan |
Proxy advisory Services are
firms hired by shareholders of public companies (in most cases an institutional
investor of some type) to recommend and sometimes cast proxy statement votes on
their behalf, according to Wikipedia.
The vote at JP Morgan, the
US Financial Institution, was on whether or not to hike executive compensation
and whether or not to separate the roles of Chairman and CEO as currently held
by Mr. Dimon.
“The vote against the executives’ pay package at JPMorgan’s annual
meeting last week was 38.1 per cent, a sizeable revolt from major institutional
investors”, reports the FT.
According to the English
Newspaper, some 35.9 per cent contradicted the Board’s
wishes by voting in favour of installing an independent chairman after Mr Dimon
retires. He currently holds the roles of both chairman and CEO.
In reaching this much reviled decision
(by the Board), shareholders primarily took advice from Institutional Shareholders Services (ISS),
who believed that a $7.4m cash bonus
for 2014 was not justified. Mr. Dimon also made $1.5m in base salary and $11.1m
in restricted stock.
ISS advice is followed by many large
pension plans and other institutional investors across the United States and
beyond.
With the decision to go against the
Board, shareholders are in effect expressing displeasure with the pay structure
for Mr Dimon and other executives; they want rewards tied to a predetermined
performance metric, like Return on Equity (ROE).
This may just be the way to go in a
developing market like Nigeria where Good Corporate Governance is yet to take
solid foot. In this economy, much of
corporate compensation are done arbitrarily regardless of value creation.
Sometimes corporations reward failure.
It is now an imperative for
shareholders to engage advisors to help determine metrics upon which to gauge
Board performance after all skills for determining ROE, market share and profit
margins and efficiencies are not exactly common place.
