Disgruntled shareholders are expected to revolt against executive pay at this season’s round of AGMs at a level akin to 2012’s Shareholder Spring, Investec Asset Management believes.
The asset manager has predicted shareholders will vote down executive pay packages because this year marks the binding vote on remuneration, meaning companies will have to seek approval from shareholders to set top-brass pay for the next three years.
In 2013 the government introduced rules which forced firms to give shareholders a binding vote on executive pay. The rules state that in order for a company’s remuneration policy to pass it must be given the green light from more than 50% of shareholders.
Investec head of ESG Therese Nikklason believes shareholder unrest is likely to be at a level similar to five years ago when investors in some big companies refused to approve the remuneration packages of top executives – a period known as the Shareholder Spring.
She added: “The fundamental reason this is an important year is it is a remuneration policy year, so the binding vote is coming up for the second time since the changes introduced in 2013 by the government to give us a binding vote on the policy.”
According to Niklasson, remuneration is also high on shareholders’ agenda because the government is paying close attention to corporate governance more broadly, as illustrated by its recent green paper on the subject. Theresa May addressed the binding vote in one of her early speeches after becoming prime minister.
“There is a broader conversation around inequality and fairness in the economy and this [remuneration] is one of the poster boys for it, so this will be brought up,” Niklasson said.
Niklasson said a number of firms were nervous about directors’ pay and she observed some had already removed resolutions to avoid the embarrassment of addressing the issue at their AGMs.
This week self-storage company Safestore shelved plans to increase pay for its top team after bowing to shareholder pressure. Last week defence products firm Chemring pulled its executive remuneration resolution ahead of its AGM. Earlier this year, Imperial Tobacco was similarly forced to do a U-turn on its proposed pay package for executives.
“This is the year to tell [companies] what you think, and if you want to have an impact it is important to do so now,” Niklasson added.
Nikklason’s view is backed up by BMO Global Asset Management which has predicted remuneration to be top of the shareholder agenda this voting season.
The asset manager’s latest Responsible Investment Report published this week revealed it voted on more than 93,000 resolutions at nearly 9,000 company meetings in 73 countries worldwide in 2016. In terms of executive remuneration, it voted against management at 52% of these resolutions around the world – an increase of eight percentage points compared to 2015.
In the UK, BMO voted against 17% of pay-related resolutions last year, up slightly from 16% in 2015. It said this reflected a year of highly contentious remuneration proposals at large UK companies.
It said the main concerns with pay arrangements were: excessive payouts demonstrating a weak link between corporate strategy and key performance indicators used in pay plans; weak performance targets and payouts inconsistent with achieved performance levels; and excessive focus on short-term outcomes.
BMO Global Asset Management head of governance and sustainable investment Vicki Bakhshi said: “Throughout 2016, we used voting to send a clear message to the board and management of companies where we see a misalignment between pay and long-term performance.
“While we focus on remuneration arrangements of companies globally, 2017 will be a particularly significant year in the UK for the approval of binding remuneration policies at companies.”
