Show restraint over bosses’ pay or face investor revolt, firms warned
Britain’s biggest companies have been warned they face a wave of revolts in the forthcoming annual meeting season and risk a government clampdown on excessive remuneration unless they show restraint over executive pay.
The Investment Association – whose members manage £5.7tn of savings and investments – is ready to pounce on overly complex bonus deals and payouts that are not linked to performance.
Writing for the Guardian, Chris Cummings, the IA chief executive, said: “As the starting gun is fired on this year’s AGM season, businesses around the UK would do well to heed the lessons from Brexit. Too many people still feel they are not sharing in this country’s prosperity.
“Companies can either act responsibly now and shape a more responsible 21st-century corporate Britain or they can carry on as before and have it foisted upon them.”
His warning comes amid signs that big investors are preparing for a lively AGM round. Royal London Asset Management, which manages £100bn of assets, intends to vote against any long-term bonus scheme that increases the potential maximum payout for bosses. Ashley Hamilton Claxton, corporate governance manager at Royal London, said she expected to vote against proposed increases to maximum bonuses and long-term incentive plans (Ltips), which usually involved awarding executives shares as a multiple of their salary.
“Our default position is to say no,” said Hamilton Claxton. “We’ve decided we need to draw a line under the maximum increase.” Bonus increases caused by executive promotions could be treated differently, she said. She also wants pay plans to be simplified.
Even before the AGM season gets into full swing, shareholders have forced Imperial Brands, maker of Gauloises and John Player cigarettes, to abandon a pay deal for the chief executive, Alison Cooper. That enhanced bonus scheme would have increased her maximum annual pay from £5.5m to £8.5m.
The travel company Thomas Cook has also cut the maximum bonus payout for its chief executive, Peter Fankhauser, under a new long-term bonus plan.
Cummings said investors would be on alert for three warning signs: significant increases in total remuneration for executives, complex pay deals, and weak links between pay and performance. He pointed to the last as a key factor in AGM revolts last year when the oil company BP and the medical services provider Smith & Nephew both had pay deals voted down. Although these were advisory votes they proved bruising for the companies.
Theresa May put a clampdown on corporate excess on the agenda last year during her campaign to become prime minister, and a green paper on possible reforms was published after her victory.
The outcome of the consultation is not yet known, but May was criticised for backing down on an idea to install workers on boards.
May’s intervention came after the coalition government gave investors a new binding vote on how a company intended to operate its pay policy for three years, in addition to the advisory vote on annual pay deals introduced by the Labour government 15 years ago.
Two-thirds of the companies in the FTSE 100 index of leading companies will have to put their pay policies to a binding vote this year. Cummings said the number of companies which had visited the IA to discuss executive pay before the AGM season had more than doubled over the last six months.