Investors hold cards for AGM season

As the last athletes crossed the finish line at the World Athletics Championships this past weekend, they perhaps weren’t the only ones to breathe a sigh of relief that the big test they have been working towards for the last year is now over. For the last six months, many chairmen of FTSE firms have had their own companies’ performance put to the test by their shareholders during the annual general meeting (AGM) season.

There are no medals, of course, for companies avoiding a showdown at their AGM. But boards across the UK’S listed companies are well aware of the repercussions of shareholder dissent, both on their company’s reputation and even, ultimately, on its share price.

All listed companies must host an AGM to enable shareholders – the owners of the company – to fulfil their rights and hold the board to account for the decisions made during the year. They do so by voting on key issues such as the annual report, the election or re-election of directors and, most high-profile of all, the company’s remuneration report and its three-year remuneration policy.

This shareholder scrutiny is a critical way of ensuring that those of us who ultimately invest in the UK’S largest companies through pensions and savings are getting the best possible return on our hard-earned money. Much of this important activity of holding big business to account is performed by asset management companies (the companies the Investment Association represents) on behalf of individual investors. IA members collectively own one third of all UK listed companies so their activism can really affect the way companies are run. Last year’s AGM season saw a number of high-profile shareholder rebellions amongst the FTSE 100, especially around the pay of chief executives. By this point last year, one in seven FTSE 100 companies had experienced a shareholder rebellion of 20pc or more of votes against the board.

This is also something of a milestone year, since it’s the first time that many companies resubmitted their remuneration policies to a binding vote since such votes were made mandatory every three years, under new government rules introduced in 2013. The votes cast this year on remuneration policy will therefore frame the way companies can pay their top teams until 2020.

Our analysis of this year’s AGM season voting data shows that, by contrast with 2016, FTSE 100 companies have listened and acted on last year’s investor rebellions. Indeed many submitted more conservative pay policies for their executive teams, which were more in line with shareholder expectations. This led to a 35pc decrease in remuneration resolutions that received over 20pc of shareholder dissent in 2017.

FTSE 250 companies, on the other hand, were in the investor spotlight this year, with twice as many companies attracting significant shareholder dissent in 2017 compared to 2016. Almost 30 companies were subject to 20pc or more of votes against their remuneration resolutions, up from 15 in 2016.

This year also saw shareholders turning up the heat on individual director accountability in the FTSE 350. Votes cast against individual directors soared more than fivefold from four directors with votes against them in 2016 to 21 directors in 2017, all seeing rebellions at 20pc or more votes against election or re-election.

All of this matters, of course, because well-run and well-performing companies yield good long-term shareholder returns, and in turn help British savers and pensioners. Big FTSE 100 companies like BP, Glaxosmithkline and Reckitt Benckiser that all suffered big shareholder rebellions last year addressed shareholder concerns in this year’s AGM season due to sustained investor pressure. Others in the FTSE 250 such as Crest Nicholson, Drax and Balfour Beatty were all burnt by big shareholder dissent this year and will no doubt think twice before presenting unreasonable pay policies at next year’s AGM season.

Reform of executive pay is a marathon, not a sprint. But these latest data show that shareholders are marshalling companies in the right direction. Market mechanisms are working and, where executive pay policies do not reflect performance, investors are quick to send a strong message that they won’t tolerate unjustified rewards and spiralling pay. Company boards have been warned: ignore your shareholders at your peril.

‘Data show shareholders are marshalling companies in the right direction’

‘Trump and his team must assess how much overhaul is necessary to meet the expectations of his rhetoric’