Investors have been making their views known when it comes for fair pay this AGM season. ESG Clarity looks at five lively remuneration resolutions from the year.
Liontrust
Asset manager Liontrust recently said it will tie its ESG and sustainability activities to executive remuneration in a bid to further embed the processes throughout the company.
The move came four months after it narrowly avoided having a CEO and COO pay increase and a new long-term incentive plan (LTIP) rejected by shareholders at its AGM.
Liontrust said it was “acutely conscious” of the 54.1% of votes cast against the remuneration policy in February.
“The company will continue its policy of full transparency with proactive engagement with its shareholders on aspects of remuneration,” a spokesperson said.
CEO John Ion’s salary was £348,000 last year, but he earned a total of £6.6m. According to the resolution, his salary would increase to £550,000 plus up to 450% of his annual salary as a bonus.
Proxy advisers Glass Lewis and Institutional Shareholder Services (ISS) recommended voting against Liontrust management on the resolution with Glass Lewis stating the policy seemed to be making executives “eligible for remuneration that significantly outpaces their peers”.
Sainsbury’s
The UK’s second largest supermarket chain has come under fire for the low wages of many of its workers and earlier this month faced the UK’s first living wage resolution at its AGM. There was support from 17% of voting shareholders. Sainsbury’s recommended shareholders vote against the resolution which would have ensured a long-term commitment to the real living wage for its employees – separate to the national living wage which is minimum wage for those 23 and over – and would have meant subcontracted staff such as cleaners and security guards were included in such pay pledges.
Sainsbury’s has also been defending executive pay recently with CEO Simon Roberts’ total pay for the last financial year at £3.8m – or 183 times that of the median Sainsbury’s worker.
When the living wage resolution was proposed in April, Sainsbury’s implemented a pay uplift for directly employed staff which meant all UK workers’ pay was in line with the current living wage rate.
However, the NGO ShareAction, which coordinated the resolution, said this was insufficient and called the 17% vote against management a “powerful message from shareholders” that the group should commit to the living wage for all workers.
“As we deal with the continued effects of the cost-of-living crisis, the conversation round low pay isn’t going to go away, and both employers and investors need to step up. We look forward to hearing how the company will address shareholder concerns,” said ShareAction campaign manager, Rachel Hargreaves.
Co-filers of the resolution included Legal & General Investment Management, Fidelity International, workplace pension scheme Nest, and HSBC Asset Management.
Sainsbury’s chairman Martin Scicluna said the company’s decisions on wage rates should not be set nationally by the Resolution Foundation as the real living wage is.
“We believe very strongly in paying people well for the excellent job they do for our customers every single day. We also believe that we need to make all business investment decisions independently and that these decisions should not be outsourced to a third party,” he said.
Boohoo
The fashion retailer Boohoo saw a protest from shareholders over executive pay at its AGM in June. A third of votes cast on the company’s annual remuneration report went against management, while 25% rejected a new LTIP.
The LTIP included scope for CEO John Lyttle to get a bonus of up to 200% of his £652,000 salary, should he meet certain financial targets for the company.
Boohoo’s annual report stated: “We have also decided the bonus opportunity for John Lyttle will increase to 200% of salary, to ensure he has a market-competitive overall remuneration package and to align his incentive opportunity with that of the founder directors.
“A bonus limit at this level is also considered to reflect more accurately his responsibilities and contribution as group CEO.”
The maximum bonus for CFO, Neil Catto, was proposed to remain at 100% of salary and at 200% of salary for co-founders Mahmud Kamani and Carol Kane.
In a statement to the market Boohoo said it would “reflect on the result… and the remuneration committee looks forward to ongoing engagement with the group’s shareholders as it continues to shape the group’s future remuneration policy”.
Pendragon
Management of UK car dealership company Pendragon also suffered a defeat at its annual meeting in June. Two-thirds, or 66%, of voting shareholders rejected a remuneration report which laid out 2021 executive pay, including a £3.4m pay packet for CEO Bill Berman. The CEO faced a revolt when 35% of votes cast on a separate resolution rejected his re-election.
Swedish car retailer Hedin Group, which has a 27% stake in Pendragon, voted against the remuneration report. Owner Anders Hedin told The Sunday Times: “I would like Pendragon to explain why the chief executive deserves an astonishing £3.4m in pay – the equivalent of 4% of Pendragon’s profits – and more than three times the compensation awarded to chief executives at Pendragon’s competitors.
“This is unwarranted, wasteful and totally unacceptable.”
The investor also pointed to the fact Pendragon executives are receiving such bonuses while Pendragon is refusing to pay back Covid-related government support worth £64m.
In a company statement, Pendragon said its remuneration committee tried to ensure executive pay was in line with financial performance, market benchmarks and supporting the business’ long-term success.
“Although the remuneration committee is satisfied its decisions were made in the best interests of all stakeholders, it respects the views expressed by shareholders regarding the resolution,” Pendragon stated.
Looking ahead, the company said it plans to go back to LTIP awards with a three-year performance period and two-year holding period.
“In addition, the company’s overall remuneration policy is due to be presented to shareholders for renewal at the 2023 AGM. Between now and then the remuneration committee intends to consult further with shareholders on the formulation of the new policy.”
Informa
FTSE 100 events company Informa was stung when 71% of votes cast on its remuneration report were against management. The advisory vote rejected a pay package to CEO, Lord Carter, worth £2.7m.
In a statement, the company pointed out the pay package was issued in 2020 “during a period of pressure and uncertainty for Informa” and it was intended to focus senior leadership on immediate priorities and retain key talent.
It is the third AGM in a row Informa has experienced a shareholder revolt over executive pay.
ISS stated Informa remuneration remains “out of line with market standards due to the operation of the variable pay schemes”.
At the same AGM, a forward-looking pay policy, to take effect in 2024, received support from 93% of voting shareholders.
Aligning interests
Matt Crossman, stewardship director at Rathbones, said despite there being little change in the number of failed remuneration reports at AGMs this year – from four in 2021 to three in 2022 – there has been increased scrutiny on executive bonuses. Crossman noted FTSE 100 CEO pay has reached its highest level in five years.
He said Rathbones tends to see executive pay as the area with the largest votes against management during the UK and US AGM season, with an increasing focus on E, S and G resolutions.
“From our perspective, voting on executive pay is about aligning the interests and experience of management with those of stakeholders, creating long-term value.”
A key focus, Crossman said, has been remuneration reports and policies where a company has accessed the UK government’s job scheme and/or made redundancies but the board has not used downward discretion to senior management’s awards.
“In other words, there’s an expectation that remuneration committees apply discretion to variable remuneration outcomes to bring the experiences of senior management in line with the rest of the workforce and wider stakeholders. We also want to see people with experience taking charge of remuneration committees at bigger companies,” he commented.
Alongside the increased scrutiny on pay, Crossman has seen improved responses from targeted companies: “We’ve noticed a significant uplift in the number of responses we’re getting from companies during this AGM season, particularly from the larger US companies.
“Frequently, we’re sent in-depth responses to our concerns on pay and increasingly offered follow up-meetings with relevant people.”
