Boardroom pay will soon be back in the spotlight as this year’s annual general meeting season gets under way in the City.
Major investors are also on alert for companies handing out overly generous pension arrangements to their senior executives, having too few women at the boardroom table and not having succession plans in place for their bosses.
Shareholders – some of whom control multimillion-pound stakes and others who own just a couple of shares – get a chance to voice their views in public at the AGMs of many major companies listed on the stock market which will take place in the coming three months.
They can be hostile events for the full-time directors and part-time non-executives, not only because investors can ask questions from the floor but also because they vote on a series of resolutions, including the traditionally contentious issue of executive pay.
“The first area that comes up at the AGM season, and what we are watching particularly carefully this year, is remuneration,” said Bruce Duguid of Hermes Investment Management.
In 2014, companies put their pay policies to the vote for the first time. These polices set out the approach to executive pay for the coming three years so 2016 is the last year they are in place. Some companies may now be trying to increase the salaries of their boardroom executives before putting their three-year policies to the vote again next year.
“This is the time to attempt to look at higher quantum,” said Duguid.
Each year investors are also given a vote on the remuneration report covering that year’s pay – and this year pension payouts to top executives are on shareholders’ agenda. The advisory body Pirc, or the Pensions and Investment Research Consultants, is also seeking proper explanations from companies for the use of share buybacks to ensure that these are not being used to prop up pay deals for company bosses by artificially improving shareholder returns.
The scale of pay deals on offer is illustrated by Sir Martin Sorrell – the founder and chief executive of WPP – who stands to receive almost £70m for 2015.
Succession planning is being closely watched too. GlaxoSmithKline, HSBC and Schroders are among companies that have announced changes at the top. The pharmaceutical company GSK said its chief executive, Sir Andrew Witty, would go next year while the banking group HSBC is preparing for the departure of its chairman Douglas Flint and, it has signalled, the chief executive Stuart Gulliver too.
The asset manager Schroders is flouting corporate governance codes by elevating its chief executive, Michael Dobson, to the chairman’s seat.
Oliver Parry, senior corporate governance adviser of the Institute of Directors, contrasted Schroders and HSBC which, he said, was planning a year in advance. “They are doing a very good job,” he said.
The aim is to avoid the cost of luring chief executives from rival firms, as recently highlighted by the oil and gas firm BG. It hired CEO Helge Lund on a multimilllion-pound scheme just months before being sold to the oil company Shell, and details of Lund’s final pay deal are awaited by BG shareholders.
Ashley Hamilton Claxton, corporate governance manager at Royal London Asset Management, said companies could be risking rows if pension payments were excessive.
“We do not think executives should receive preferential treatment with regards to pension payments. Companies should strive to achieve pension fairness for all staff, regardless of seniority. Lloyds Banking Group stands out as a laggard on this issue offering a pension benefit of 50% of base salary to the CEO,” she said.
In a comment piece for the Guardian, she said: “There is no clear cut model for success, but we strongly believe that across the [banking] sector, more must be done to ensure that executives are remunerated appropriately for the value they deliver to shareholders. This means sharing the pain as well as the gain.”
Duguid of Hermes is also preparing to protest at companies that have failed to reach the target set in 2011 by Lord Davies for 25% of the seats to be held by women by now.
A new target for 33% female representation in the boardroom has been set for 2020. “If a company hasn’t reached the [25%] target and has no plans to do so over the next period to 2020, and has no explanation for why, we will consider voting against,” said Duguid.
The “shareholder spring” of 2012 – when record numbers of pay deals faced rebellions – is still fresh in many executives’ minds. Sarah Wilson, chief executive of the advisory agency Manifest, said: “Are we going to get a repeat of the shareholder spring? I don’t think so. But we could see some of the underperforming companies taken to task.”
Potential flash points
Persimmon 14 April The house builder’s long-term bonus scheme is based on generating returns to shareholders, which Manifest said are “under the direct control of the company and there is a potential threat that unsustainable shareholder returns could be made at the expense of longer term investment in company assets”. Defending the scheme, Persimmon said it had been approved in 2012 and extends beyond the boardroom to 150 executives.
BP 14 April A near-$20m pay deal for Bob Dudley, fuelled by a $6.5m increase in his pension contribution. The company points out Dudley has a US pension scheme which is inflated under UK rules.
Schroders 28 April The elevation of the chief executive, Michael Dobson, to chairman. The fund manager has issued a letter to its investors setting out that Dobson is the outstanding candidate for the role.
Barclays 28 April It has warned of a dividend cut in 2016 and 2017, and in 2015 paid out £500m more in bonuses than in dividends to shareholders. The chief executive, Jes Staley, has said the “hard” decision on the dividend was needed to bolster shareholder returns in the years ahead.
Lloyds Banking Group 12 May A pension contribution of 50% of salary for the chief executive, António Horta Osório – an arrangement that has been in place since he was hired six years ago – may be criticised.
This article was written by Jill Treanor, for theguardian.com on Sunday 27th March 2016 14.58 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010