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Julia Irvine 22 Dec 2017 12:13pm

Ensuring CEOs align interests with shareholders

FTSE 350 companies are using a shareholding requirement to ensure that their chief executive’s interests are better aligned with those of their investors, a survey from KPMG has found

Almost a third (31%) of the companies have either introduced or increased shareholding requirements for their CEOs over 2017, with the median level now at 250% of salary for the FTSE 100 (up from 238% in 2016). The median level for the FTSE 250 stayed the same at 200%.

The year saw more listed companies – 21% of FTSE 100 and 71% of FTSE 250 – introduce, or increase the length of, post-vesting holding periods for long-term investment plans. The median period is now two years.

KPMG also finds that shareholders are getting more vocal about directors’ remuneration packages. While only two FTSE 350 companies received majority votes against their annual remuneration reports and none against their policy, the firm reports that shareholder dissent was up on both counts.

During 2017, significant votes – 20% or higher – against annual remuneration packages increased from 9% to 10%.

Chris Barnes, KPMG’s head of reward, says shareholders use their vote in particular to complain about lack of disclosure for targets, significant increases in base salary or no clear link between pay and performance.

“The majority of companies continue to receive high levels of support for their executive remuneration packages from shareholders,” he adds.

“But, there was a slight increase in challenges to those agreements over the past year, which suggests that more needs to be done in reshaping remuneration policy before it meets the expectations of stakeholders.

“In particular, pension contributions for directors are still much higher than for average employees and the gap is widening, which will draw scrutiny from investors who contest the use of cash supplements in executive remuneration.”

Earlier this week, the Investment Association launched a new public register which shows that the scale of shareholder rebellion is far wider than the few high profile agm showdowns that have hit the headlines in recent months would suggest.

Data from the register reveals that in 2017 more than one in five (22%) FTSE listed companies either withdrew a resolution ahead of their agm or received votes of 20% or over against a particular resolution.

Pay-related issues dominated the list of shareholder concerns during the year. Nearly four out of 10 (38%) resolutions attracting adverse shareholder comment related to companies’ annual remuneration reports, remuneration policy or other remuneration related resolutions.

 

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