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29 Apr 2016 01:30pm

Shareholder rebellion over executive pay gathers pace

Almost three quarters (72.36%) of shareholders at Weir Group have rejected the company’s director’s pay policy in a shareholder rebellion over excessive executive pay

Only 27.64% of the company’s investor base voted in favour of the engineering firm’s remuneration plans, making it one of the largest rejections of a pay policy since binding votes on bonus plans were introduced by former business secretary Vince Cable in 2013.

The new remuneration policy would have awarded executives with restricted stock awards that are not tied to performance targets. The maximum award available to the most senior executive director would have been 165% of salary.

The company acknowledged, “a majority of shareholders were clearly uncomfortable with a new approach which did not follow standard UK practice."

“The board looks forward to further engagement with shareholders regarding remuneration,” said chairman Charles Berry.

Hermes Investment Management called on the firm to “apply the test of common sense” if performance targets fail to create value over the long term due to falling oil prices.

The fund manager also recommended investors vote against a number of remuneration-related proposals at Shire and Tullow Oil.

Dr Hans-Christoph Hirt, co-head of Hermes said the company does not support Shire chief executive Fleming Ornskov’s 25% salary increase, particularly given that his overall bonus potential is more than 10 times his basic salary and his total remuneration was over $21m last year.

“We believe that an incremental approach to salary rises is more appropriate and should reflect shareholder value creation over the longer term.” Dr Hirt said.

The FTSE 100 pharmaceutical group based in Dublin narrowly won approval for Ornskov’s pay rise after 49.45% of investors voted against the firm’s directors’ remuneration report and 50.55% voted in favour.

Dr Hirt added that the bonus award to executives at Tullow Oil (38% of the potential maximum), which equates to almost two times his basic salary, is out of step with the decline in Tullow’s share price of approximately 80% over the last three years.

“We feel that there is a good case here for downward discretion to have been applied by the remuneration committee to the mechanistic outcome of the remuneration policy,” he said.

However, only 9.3% of investors rejected Tullow’s pay policy.

CRH‘s new director’s remuneration policy was also approved, despite 40% of shareholders voting against the policy.

The board acknowledged lower levels of support for the adoption of the new policy.

The firm’s remuneration report was also widely supported.

“We have engaged extensively with our major shareholders on the remuneration report and acknowledge the vote today. We remain firmly committed to a constructive and appropriate dialogue to fully understand shareholder views as we compete in a global market place,” the company said.

In a week of shareholder rebellions, almost 15% of investors at wealth management firm Schroders voted against the election of long-standing chief executive Michael Dobson to the role of chairman. Hermes had raised concerns over the breach of a fundamental principle of UK corporate governance and best practice that a CEO should not become chair of the company.

Commenting on the Schroders AGM, Ashley Hamilton Claxton, corporate governance manager at Royal London Asset Management, said, "Royal London Asset Management is voting against the remuneration report at Schroders, and the appointment of Mr Dobson as Chairman. We apply the same governance standards to all companies, regardless of sector.

"Although Mr Dobson was successful in leading the company as CEO, his appointment as chairman is inappropriate and in clear violation of the corporate governance code."

Over 20% of shareholders rejected estate agent Countrywide’s executive remuneration report while only 6.4% of investors rejected Barclays’ remuneration report at the bank’s AGM this week.

More than a third of Citigroup’s shareholders voted against the bank’s executive pay packages for 2015.

However, 64% voted in favour of the payouts, so the plans were approved.

The decision follows advice given to shareholders by proxy advisory firms Institutional Shareholder Services and Glass, Lewis & Co to vote against approving last year’s payouts to executives at the bank.

The firms argued that there was a disconnect between the compensation awarded to Citi’s chief executive, Michael Corbat and Citi’s total shareholder return compared with peers.

Corbat received a 27% raise bringing his 2015 compensation to $16.5m (£11.4m), despite the bank suffering poor results on the stock market.

Meanwhile, Royal London Asset Management intends to vote against the 2015 remuneration reports at Standard Chartered and Reckitt Benckiser, the owner of Dettol, Scholl and Nurofen.

"This year has seen a ‘spring of discontent’ for a number of major British companies, with shareholders demonstrating their unhappiness at the remuneration packages awarded to top executives last year at a time when company performance was lacklustre at best," said Ashley Hamilton Claxton, corporate governance manager at Royal London Asset Management.

She added that it is “encouraging to see a number of major institutional investors following our lead, both in their voting intentions and in speaking out publicly.”

“Our view is that pay should remain tied to performance and we feel it is important to recognise companies where the board has engaged productively with shareholders. On this basis, we are happy to highlight companies who have taken encouraging steps regarding executive remuneration, as we have done with Aviva.

“Where votes against remuneration reports have been high, several key themes stand out; Complex long-term remuneration strategies, cash ‘top-ups’ via pension payments and a failure to use common sense and discretion. These themes contributed to shareholder rebellions over executive remuneration at BP and AngloAmerican,” she said.

This year’s AGM season began with remuneration policies at two FTSE 100 companies – BP and Smith & Nephew – being rejected on the same day.

The majority (59.1%) of BP shareholders voted against chief executive Bob Dudley’s £14m pay package earlier this month.

Shareholder advisory group Manifest said this was the fifth largest vote against remuneration in the UK.

Prior to Thursday, only seven FTSE 100 companies had failed to secure approval of their remuneration report, according to advisory group Glass Lewis.

Last week a group including some of Britain's most high-profile bosses said that executive pay in the UK is "not fit for purpose" and needs reform.

The Executive Remuneration Working Group said we should move away from the current ‘one-size-fits-all model’, and that a range of other options should be considered by companies when deciding on executive pay structures, based on their own business strategies and circumstances.

Nigel Wilson, chairman of the Executive Remuneration Working Group, said, “The current approach to executive pay in UK listed companies is not fit for purpose, and has resulted in a poor of alignment of interests between executives, shareholders and the company.

“Greater transparency, clearer alignment of shareholder, company and executive interests, more accountability on the part of remuneration committees and greater engagement with and control by shareholders, working through company boards, are vital to restore confidence in a system widely seen as broken.”

Sinead Moore

 

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