AGM season: Remuneration and climate change under spotlight

‘Businesses can expect shareholder pressure to intensify’


Gemma Woodward, head of responsible investment, Quilter Cheviot

With the first quarter of the year out of the way attention is turning to annual general meetings (AGMs). While companies’ annual get-togethers of shareholders often result in a lot of headlines often for the wrong reasons, they are also an opportunity for shareholders to have their say on how well the company is operating.

This AGM season, more than most, will be fascinating to watch and participate in, and there are two important trends we are looking out for from an engagement perspective: remuneration and climate change.

Remuneration conundrum

The first issue many businesses will have to contend with is remuneration. Executive pay has become an increasingly controversial topic and the circumstances many organisations find themselves in could cause some shareholder dissatisfaction.

AGMs this year will be held without the shadow of Covid-19 lingering over it. With the threat of lockdowns or Covid-19 enforced regulations ending in the UK there is a real desire to see in person AGMs rather than the virtual meetings of the past 24 months. Part of this is particularly important for individual shareholders who would find it much more difficult to ask a question of the board virtually and do not have the access that institutional shareholders have to the board.

As a result, attention will once again return to the topic of pay for senior executives. During the pandemic many businesses took the opportunity to be very restrained in this area, not awarding large bonuses or big pay rises to those at the top. To illustrate the mood of shareholders at the time, even AstraZeneca, who developed the Covid-19 vaccine and sold it at cost price, saw a large-scale revolt over proposals to give its chief executive a bigger bonus by increasing his total variable pay opportunity from 650% of salary to 900% of salary over the course of two years. 40% of shareholders voted against the package – which still went through as the resolution required 50% approval.

With the pandemic hopefully in the rear-view mirror, some companies may use this as an opportunity to now press ahead with the pay rises it had postponed the previous year. We are not so sure this will be well received, however.

While some organisations can defend their remuneration policies, some of these are for very company specific reasons. For a lot of businesses, though, the issue of executive pay is still very political, and pressure will be put on those firms that accepted government support during the pandemic, such as business rates relief or furlough. If companies have not paid this support back, they may find shareholders won’t look too kindly on proposals to bump up executive pay, even if they have had a successful 2021 as the recovery played out and demand for some goods spiked. With a backdrop of higher energy and food prices for the average worker and the heavily criticised comments from the governor of the Bank of England urging wage restraint, companies must be mindful of the mood music.

Climate change going nowhere

The other major trend we are expecting to see is an increase in the number of shareholder resolutions being brought to the table about energy transition and climate change.

While the success of COP26 in November can be debated at great lengths, one thing we have seen is an increasing pressure on businesses to make clear their climate transition plans and how they will aid the battle against climate change.

We have already seen some groups look to get on the front foot on this issue with NatWest recently informing shareholders they will be given an opportunity to have a say on its strategy regarding climate change and energy transition.

What we are seeing now is shareholders wanting clear details on how exactly corporations will achieve what they have promised to do. Indeed, the issue has been catapulted onto the agenda of AGMs, with some of the largest asset owners leading the way. According to shareholder data provider Insightia, Blackrock supported 75% of US companies’ environmental proposals in 2021, compared with just 18% in 2020.

Clearly demand for action is growing and businesses are running out of time to develop their strategies. Without detailed and measurable action plans, businesses can expect shareholder pressure to intensify.

What both the climate agenda and executive remuneration shows us is there is no substitute for good engagement. Shareholders have an opportunity like never before to help shape the future strategy of the companies they own, while corporates need those shareholders onside to help drive forward the changes they want to see.

Latest Stories