The payday heyday is over: why CEOs will have to prove their worth

It’s tough being a multimillionaire chief executive these days. Just take Reckitt Benckiser CEO Rakesh Kapoor, for example. Aside from a small mishap where it was found to have been selling deadly disinfectants in South Korea, the company is, by all means, in good health. All Kapoor wanted in return for his leadership was an 81% pay rise to £23.2m. But, at the company’s annual general meeting last week, nearly a fifth of shareholders cheekily questioned his worth by voting against the remuneration report.

Not that it made the slightest difference to his pay of course – that would require a majority vote – but as a news story in The Guardian noted last week, an increasing number of UK CEOs are under fire from their shareholders. Last month, 59% of BP shareholders rejected chief Bob Dudley’s £14m pay deal, while 46% of Ladbrokes shareholders felt the same about a mere £567,000 payout to CEO Jim Mullen.

Meanwhile there’s a huge furore over WPP CEO Sir Martin Sorrell’s £70.4m compensation for 2015. The package has yet to be voted on as the AGM is not till June but Sorrell’s response brings to mind all those fat cat stories that preceded the financial crash of 2008. “It’s really pay for performance over the long term,” he said. Translation: I’m worth it, suckers.

A few weeks ago, The Co-operative’s CEO Richard Pennycook went against the grain when he volunteered to take a 60% pay cut. Other supermarket bosses have not been so hard on themselves. The Grocer’s analysis of executive pay at the top 10 UK food and drink retailers, due to be published in this Saturday’s magazine, shows salaries have generally gone up over the past year rather than down.

But the tide may be turning against sky-high executive pay – not only among the general public, but among CEOs themselves.

Sainsbury’s chairman David Tyler was one of several business heavyweights who have branded UK executive pay “not fit for purpose” and unjustifiably high in a report published last month. He appears to be practising what he preaches: Sainsbury’s chief executive Mike Coupe was paid the lowest of the big four bosses in 2014-15. And, at £1,507,000, his salary is less than half that of his predecessor Justin King.

With such a backlash, not to mention the scrutiny Sir Philip Green is under over his remuneration, will others follow in these footsteps in taking a more cautious approach? As the public – and crucially, shareholders – become ever more critical of high salaries, chief executives will inevitably come under increased pressure to justify their pay packets. And a L’Oréal (or Sorrell)-style “I’m worth it” may not cut it any more.