Spain’s bosses need an internal devaluation

July 20, 2012

By Fiona Maharg-Bravo

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Spain is fertile ground for a “shareholder spring” over executive pay. Bosses in some cases make multiples more than their peers in other European countries, as do board directors. Investors turned a blind eye in the boom times. Now their inaction is even harder to excuse.

Take Telefonica, where Cesar Alierta has been executive chairman since 2000. In 2011, he made 10.2 million euros in basic salary, cash bonus, benefits and pension. His counterparts at France Telecom and Deutsche Telekom were paid 1.6 and 3.9 million euros respectively, including bonuses and contributions to pensions. In the oil sector, Antonio Brufau, executive chairman of Repsol, received a 10.5 million euros last year, double the pay for Eni’s chief executive officer.

It’s the same story in the troubled banking sector. BBVA’s executive committee enjoyed a 26 percent increase in compensation between 2007 and 2011, while its share price more than halved, according to estimates by Exane BNP Paribas. Meanwhile, Santander had set aside 158 million euros at December 2011 to fund the pensions of its top three executives.

Board directors in Spanish companies are the second highest paid in Europe, behind Switzerland, earning more than double their French counterparts, according to headhunter Heidrick & Struggles. In 2011, Spanish boards saw a 5 percent pay rise on average, despite a drop in profits, according to the stock market regulator. The proportion of pay that is fixed rather than performance-related in also tends to be higher than elsewhere in Europe. Unsurprisingly, directors in Spain have longer tenures than the European average of 5.7 years.

Spain is moving towards greater transparency in executive pay. Up until last year, Alierta’s remuneration was not even disclosed. And Telefonica plans to cut variable pay by 13 percent this year. But corporate governance still looks behind the curve when other countries, notably the UK, are introducing new powers – such as binding votes on overall pay policy – enabling shareholders to hold their executives to account.

With Spain’s economy sinking into recession, real incomes falling and more austerity in store, huge corporate pay packets are even more jarring. No wonder Spanish bosses are also glued to their seats: few faces have changed over the past decade. Shareholders in British companies have lost their patience with such excess. Investors in Spanish companies should also make themselves heard.

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