The uprising began last month when an unusually high percentage of shareholders at Barclays BARC.LN -1.95% PLC voted against the bank’s pay plan. People familiar with the matter say the vote was preceded by an internal fight on the bank’s board, with some directors pushing Chief Executive Bob Diamond to forgo his bonus—an idea that was rejected. That opened the door for shareholders to openly express their displeasure.
Shareholders have further turned up the heat since then, playing a role in the departure of three high-profile corporate chiefs in the U.K. The anger is expected to only intensify in coming weeks as restive investor groups train their sights on other companies, such as advertising giant WPP WPPGY -0.34% PLC, whose executives are enjoying big paydays.
Discontent among U.K. shareholders, who have historically had a limited voice in the governance of companies they own, has been simmering ever since the financial crisis exposed excessive risk-taking among banks that continues to hobble the British economy. But the ferocity of dissent this spring surprised many executives and board members.
“I don’t think that boards have fully grasped the scale of reform that shareholders want to see,” said Ivor Pether, a fund manager at Royal London Asset Management, which manages more than £40 ($64 billion) billion and holds shares of a number of blue-chip U.K. companies including Aviva AV -3.45% and Barclays.
At British companies’ annual meetings so far this year, an average of about 8.5% of shareholder votes have gone against companies’ pay plans, up from 6% last year and just over 3% in 2006, according to calculations for The Wall Street Journal by shareholder-advisory group PIRC. Assuming that trend continues, some experts say, companies are bound to become more restrained in compensating their executives, especially when performance is shaky.
Barclays shareholders had been griping to its executives and board members since early this year about the bank’s 2011 pay plan. They were unhappy because the bank’s shares had sunk about 25% over the past year, and Barclays missed its internal financial targets.
Even so, Barclays’s board awarded Mr. Diamond a £6.3 million total compensation package. That came over the objections of Alison Carnwath, the independent director who chairs the board’s compensation committee and argued that Mr. Diamond didn’t deserve his £2.7 million bonus, according to a person familiar with the matter.
But as shareholder complaints continued heading into Barclays’ April 27 annual meeting, Ms. Carnwarth, backed up by some other directors, argued that Mr. Diamond should forfeit the bonus he had been awarded, this person said. Royal Bank of Scotland Group PLC had managed to defuse a shareholder uprising earlier in the year when CEO Stephen Hester abandoned his roughly £1 million bonus.
Barclays Chairman Marcus Agius resisted the entreaties, and Mr. Diamond and his finance chief eventually agreed to make half their bonuses conditional on the bank meeting future performance targets.
At Barclays’s annual meeting, about 27% of votes were cast against the pay plan in what amounts to a rebuke for the bank’s leadership. The situation has strained relations between some Barclays directors and executives, as well as within the bank’s boardroom, according to people familiar with the matter.
Some executives blame Ms. Carnwath for being insufficiently engaged. Some directors feel Mr. Diamond and his inner circle are out of touch with popular sentiment when it comes to pay. And some directors are privately questioning the leadership of Mr. Agius.
Mr. Agius said in a statement that the board encourages “a full and vigorous debate to ensure that all views are properly understood and considered before any decisions are taken. At the end of this year’s process, as in all prior years, all remuneration decisions were unanimously supported by each of the nonexecutive directors. Any suggestion otherwise is baseless.”
A similar sequence of events took place at U.K. insurer Aviva PLC, with even more painful results.
In late March, Aviva sent a draft of its pay plan, which included £2.69 million for CEO Andrew Moss, to a handful of top investors. Aviva’s stock has fallen sharply in the past five years, and the insurer’s third-largest shareholder, financial-services company Legal & General , LGEN.LN -1.00% objected to the pay plan, according to people familiar with the matter. But the level of investor ire didn’t sink in with Aviva officials until late April, said one person who has been briefed on the matter.
By that point, there was little they could do to avoid a majority shareholder vote against the insurer’s pay plans at its May 3 annual meeting. Board members saw the vote as a repudiation of Mr. Moss’s leadership, the person said. Mr. Moss resigned five days later.
In the U.S., five Standard & Poor’s-500 companies have failed to get majority support for their executive-pay plans this year, according to compensation consulting firm Compensation Advisory Partners. The most notable instance was Citigroup Inc., C -1.24% which proposed paying CEO Vikram Pandit $15 million. None of the firms’ CEOs lost their jobs as a result of the shareholder votes, however.
Shareholders also are feeling “empowered” in the U.S., says Anne Sheehan, director of corporate governance at the $153 billion California State Teachers’ Retirement System. The system voted against the pay proposal for Trinity Mirror PLC, another U.K. company whose CEO recently stepped down amid shareholder protests over pay and performance.
Pressure from U.K. politicians—including the government’s business secretary, Vince Cable—is a big factor behind the angst among British shareholders, according to investors and corporate board members.
Last week, Mr. Cable hosted a meeting with about 15 institutional investors, according to a person familiar with the matter. The objective: to explore how committed investors were to maintaining recent levels of activism as well as to gauge their views on proposed legislation to be introduced in coming days, which could ultimately make shareholder votes on pay binding.
That commitment could be tested in coming weeks at companies that have previously drawn scrutiny over pay or other issues.
At WPP, some shareholders have been grumbling about a big raise the advertising company handed Chief Executive Martin Sorrell. They say its June 2 annual meeting could be the latest flash point for the shareholder movement in the U.K.
A WPP spokesman said its executive pay “has always been performance-related” and that the company has been making its case with shareholders.
— Leslie Kwoh and Jeanne Whalen contributed to this article.