Boards held back by ‘shame’ of paying big bucks for talent

The governance of UK companies is being undermined because businesses are “ashamed to pay top-dollar to attract top talent” to their boards, an activist investor has warned.
Liad Meidar, the founder and managing partner at Gatemore Capital Management, said that a lack of performance-related pay at boardroom level was a “fundamental” problem with UK equity markets.
“There is the sense that in the UK serving on a corporate board is some kind of noble pursuit in that if you just aren’t tainted by money, then you’re going to make all the right decisions and it just doesn’t work that way,” Meidar told The Times.
Gatemore has campaigned for the removal of the chief executive of Elementis as well as other changes at the struggling FTSE 250 speciality chemicals company. In June, the activist investor pointed out that despite Elementis’s poor performance, its leader had record compensation.
“Governance requires people to dedicate a lot of time and attention,” Meidar said. “You see as a result of that a lot of overboarding in the UK. You see a City-led culture where the same people appear on the same boards again and again and again.
“As a result of that, you have people who don’t have the time and attention to focus on the board. I think that the American board model and culture works better in many ways for generating shareholder value.
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“It requires they pay a lot more but the majority of it is in equity so you have more alignment and you have people who are expected to participate.
“When [the time] comes to make a very hard decision, such as replacing management, such as selling a division, such as refinancing the business or whatever it is, they are willing to make the extra phone call.”
While it is possible to link non-executive pay to share price performance, it is discouraged by the UK governance code.
Meidar said the inability to link pay to performance has led to “the culture of being ashamed to pay top dollar to attract top talent”.
“That’s also holding back the UK because what you have as a result of that is mediocre managers getting paid mediocre amounts,” Meidar added.
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According to Spencer Stuart, an executive search and recruitment firm, non-executive board directors in the UK are paid on average 30 per cent of what their US counterparts receive as total compensation, and have to attend a greater number of board meetings.
US directors generally receive a cash retainer plus at least matching shares, whereas in the UK shares are rarely part of non-executive director remuneration, Spencer Stuart said.