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How women on boards get fat cats to work harder

September 1, 2016
Diversity & Inclusion

Fat cat male bosses have long protested that their leadership skills are worth millions in the highly competitive world of the City. But new research suggests it is actually female pay bosses who get the best out of chief executives.

The study by advisory group Pearl Meyer found female directors appointed as the chair of remuneration committees were better at squeezing value out of chief executives than their male counterparts.

Researchers examined the performance of bosses at Britain’s 149 biggest public companies and revealed leaders delivered the best value for shareholders when their pay was set by a woman.

It came as a separate far-reaching report backed by City grandees and fund managers demanded a further boardroom shake-up.

‘In broad terms, companies where there’s a woman in charge of setting pay are more productive,’ said Pearl Meyer managing director Simon Patterson.

‘It’s difficult to draw specific conclusions – but you could surmise that women are less inclined to go along with the group and more inclined to think about what could go wrong.’

The research focused on companies’ remuneration committees, which decide how much bosses are paid.

It found the best female committee chairs were able to earn £822 for shareholders for every £1 awarded on their chief executive’s pay. The best male chairmen, however, only secured £561 for each £1 spent.

The researchers also found that 35 per cent of remuneration committees were led by a woman – even though only 26 per cent of FTSE 100 board members are female.

It suggests women have a taste for what is often a deeply unpopular and controversial task in setting the pay for board members.

‘Being the chairman of the remuneration committee is a very tough job,’ Patterson said.

‘The new normal is a powerful female chair of the remuneration committee tackling difficult issues of executive pay, highly motivated to understand what is going on and focused on solutions.’

But it is not just about keeping costs down. Female pay setters are not simply spending less on bosses’ salaries – the study found that chief executives actually earned £400,000 more on average when a woman set their salary.

Pearl Meyer suggested the better performance might instead be because women made sure bosses aimed for the right targets.

Companies with female remuneration heads also tended to be larger and Patterson argued that as supporters of women, their more progressive stance might have helped them get more bang for their buck.

Top pay setters include Lesley Knox at brewer SABMiller, who made investors £2,479 for every pound spent on chief executive Alan Clark.

He and predecessor Graham Mackay shared £10.1m between them in the last four years, according to Pearl Meyer’s estimates.

Cambridge-educated Knox, 62, is a senior banker and chairman of property giant Grosvenor Group.

The married mother-of-one has a reputation of competence, but has previously spoken about the difficulties of being a woman in the often sexist business world.

‘The City is certainly a very tough environment. I’ve had lots of experiences that these days you could sue for if you chose to write them down,’ she said in a previous interview.

‘Inappropriate remarks ad nauseam, invitations to inappropriate events, not being invited to events. Did I ever bring a complaint? No.

‘As many times as someone has said, “I’m not dealing with a f****** woman”, someone else remembers you, and when you do a good job is more likely to say so.’

The success of female directors will be hailed as a rare example of something going right in the boardrooms of corporate Britain.

But in a separate report released today, politicians and City grandees demanded a far-reaching shake-up.

Written by Conservative MP and Treasury Select Committee member Chris Philp for the High Pay Centre, it argues top business are becoming ‘ownerless’ as shareholders refuse to take control.

The research points out that the average chief executive of a company in the blue chip FTSE 100 index earns £6m a year – or 150 times the average worker. This ratio has doubled in the last ten years due to stagnant staff salaries.

The report – backed by star fund manager Neil Woodford and former Treasury minister Lord Myners – calls for annual binding votes on pay. If a chief executive lost their vote, they would not be entitled to the cash.

And the study recommends forming committees of the top five shareholders and a staff representative to beef up governance.

Woodford, who last month scrapped bonuses at his firm, said: ‘Many fund managers do not behave or think like owners because they are borrowing stock rather than investing in it.’

Former Marks & Spencer chairman Lord Myners said that non-executive directors meant to keep companies on the straight and narrow were ‘elected with North Korean-like majorities’ and ‘rarely meet with shareholders until something bad has happened’.

The report follows a so-called Shareholder Spring of revolts on sky-high executive pay. Targets included BP chief executive Bob Dudley, whose £13.9m pay deal was rejected after the oil firm’s profits slumped and thousands of jobs lost.

By James Burton for The Daily Mail

Source: This is Money

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