David Prosser: Having a say on pay before Europe does

Outlook: The EU has warned that it expects member states to ensure shareholders take their corporate governance responsibilities seriously

Contrasting fortunes for Britain's well-heeled executives yesterday. While Stephen Hester looks set to keep his £9.6m pay packet at Royal Bank of Scotland, Sir Stuart Rose has had to give up performance-related shares worth close to £1.2m after Marks & Spencer shareholders made it clear they weren't impressed.

Without debating the rights and wrongs of either case, what is clear is that for many investors, executive pay has become the stand-out boardroom issue. This year, there have already been four instances of shareholders voting down their companies' remuneration reports – at Bellway, Shell, Provident Financial and RBS itself – as many as were seen in the whole of the previous six years.

Nor is the backlash over executive pay entirely a British phenomenon. The "say-on-pay" reforms of Barack Obama may represent something of a watering down of the President's early pronouncements on fat cat remuneration but nonetheless represent a step-change to the prevailing culture on pay in the US. Across Europe too, companies have seen a series of revolts on executive rewards – and not just in the crisis-stricken financial sector.

The willingness of institutional investors to take a more aggressive – and public – stance on executive pay to some extent reflects their own concern about "rewards for failure", but anger is not the only emotion at play. Many investors are genuinely fearful that if they don't respond to public fury over executive pay – however one-dimensional that rage may be – regulators or, even worse, governments will step in.

That would likely mean rules and regulations considered draconian by those who believe in free markets. Both Britain and Germany, for example, have already had public debates about banning pay packets for executives worth more than a set multiple – say 50 times – of what grass-roots staff receive.

Organisations such as the Association of British Insurers, which has been at the vanguard of shareholder activism in recent months, don't think much of such proposals, which smack of ideological motives rather than a real desire to hold executives to account. They're more focused on ensuring performance-related incentives really do reward good performance, which is easier said than done, even though every single FTSE 100 executive now receives some pay in the form of company stock.

In the background, the spectre of the European Commission looms large. It has already intervened on the issue of executive pay, warning in April that it expects all member states to ensure shareholders take their corporate governance responsibilities more seriously. That is unlikely to be the last word from our friends in Brussels.