The season of revolting shareholders is in full swing. They are mostly revolting about the amounts being dished out routinely to the top executives of quoted companies, but considering the scale of those rewards, it might seem curious that more shareholders do not care enough to vote against these magnificent, intricate pay packages.

The answer is that those running large fund management businesses are not going to drain the swamp while they are wallowing in it. Here, for example, is Jupiter Fund Management. The 32 pages in the annual report devoted to pay contain enough detail for a PhD, but the board considers that the elegantly crafted and almost incomprehensible set-up is no longer enough to get the executives out of bed.

The remuneration committee has decided that Maarten Slendebroek, the CEO, needs £425,000 rather than £250,000 to come to work, and as much as eight times that much if he does really well when he gets there. Small wonder that a fifth of Jupiter’s shareholders voted against the report at the annual meeting.

Fund management CEOs are obviously jolly valuable. Janus and Henderson merged after deciding that managing $127bn of other people’s money was “sub-scale”, a deal which allowed the pay of both chief executives to be scaled up to $17m between them.

Jupiter and Henderson have clearly under-rewarded their CEOs. Both companies are bleeding assets, so the obvious answer is more executive incentives to stop the rot. Jupiter’s funds under management are down from £50bn to £47bn, and the share price has defied the bull market, falling a quarter this year.  After a twitch of enthusiasm following the merger, Janus Henderson’s shares have wilted a similar amount as the money has fled their funds.

If they are to justify picking the pockets of shareholders this way, the new, souped-up pay packages must quickly reverse those outflows. In the meantime, you can see why the managers with holdings in companies which award their executives life-changing packages are so reluctant to rock the gravy train.

Yesterday’s problem, or tomorrow’s?

Good news and bad on the pensions front. Marks & Spencer may be struggling to avoid becoming the Woolworths of the 2020s, but its pension fund is in rude health. Actually, and actuarially, so are nearly all the big company funds. Lane Clark’s annual survey calculates the surplus in the FTSE100 constituents at £4bn at the end of last year, and estimates it at £20bn last month, the best since 2007.

For all their smart sums, measuring the difference between two large numbers is as much art (or accounting rules) as science, and two baleful features stand out from the good news. As medical science loses the race with obesity, life expectancy is starting to fall for the first time in half a century.

This ill wind has blown more schemes into surplus, but has done nothing to stop their managers’ dash to so-called risk-free assets. A pension fund is uniquely placed to take the long view, and all the evidence points to shares as the best long-term home for savings. Yet from over 60 per cent equities in 2002, the funds’ proportion of assets in shares has slumped to little more than a fifth. The money has mostly gone into bonds, which are surely riskier today than at any time in the last 20 years. A return to “normal” rates of interest, and the surplus would vanish like smoke.

Don’t get mad, get even

The exception tests the rule, and the exception in a much-troubled sector is Babcock International, outsourcer to the MoD. Last week it reported some business-as-usual results, unlike Capita, G4S, Mitie and Serco for whom business as usual is a distant dream.

Last December, fretting about the accounting horrors among support service companies, analysts at Morgan Stanley and RBC got the jitters over Babcock as the share price tumbled. This week’s numbers, capped with a 4.8 per cent rise in the dividend, show their fears were unfounded.

Other shares in this disgraced sector could hardly be less popular. Research from MarketPsych in the US suggests that a bet against the angry mob is a highly profitable investment strategy, since we throw stocks in hated companies out of the portfolio almost regardless of price. We should grit our teeth and hang on.

This is my FT column from Saturday (with apologies for late publication)

 

Advertisements