Show re­straint over bosses’ pay or face in­vestor re­volt, firms warned

The Guardian - - FINANCIAL - Jill Tre­anor

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.

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