Shareholders flex their muscles in 2017 AGM season to reduce FTSE pay

Wednesday 16 August 2017

FTSE 350 companies are responding to investor pressure to reduce executive remuneration

• FTSE100 companies have listened and acted on 2016 investor rebellions, with a 35% decrease in 2017 remuneration resolutions that received over 20% dissent
• FTSE250 companies were in the investor spotlight in 2017, with a 100% increase in companies getting 20% or more of votes against their remuneration resolutions compared to 2016
• FTSE350 companies overall saw a 200% increase in votes against a Director re-election
• 6 FTSE350 companies withdrew resolutions on pay ahead of the company AGMs to avoid a shareholder rebellion

New analysis of the 2017 AGM season voting data by the Investment Association shows that, at a critical time for pay policy renewal, investors are effectively holding FTSE100 and FTSE250 companies and their individual directors to account on executive remuneration.

Many FTSE100 companies who saw large shareholder votes against pay in 2016, have on the whole submitted more conservative pay policies in 2017 for their executive teams, which were more in line with shareholder expectations. These policies were up for their 3-year renewal this year and rebellions on all remuneration resolutions in the FTSE100 were down from 14 in 2016 to 9 in 2017.

FTSE250 firms on the other hand saw dissent amongst shareholders double from 2016 levels, with 29 companies seeing votes with more than 20% dissent, up from 15 in 2016.

Shareholders are also turning up the heat on individual director accountability at this year’s AGMs, with votes cast against individual directors soaring 200%, from 7 directors in 2016 to 21 directors in 2017 seeing 20% or more votes against.

The 2017 AGM season also saw a new trend of several FTSE350 companies withdrawing resolutions on executive pay packages ahead of shareholders voting, due to concerns over significant investor rebellion.

Chris Cummings, CEO of the Investment Association, said:

“Data from the 2017 AGM season shows that investors are flexing their muscles and holding big business to account.

“Executive pay amongst the UK’s largest companies is starting to decline to a level more in line with shareholder expectations. There is still some way to go, but a strong signal has been sent to boardrooms around the country that investors won’t tolerate rewards that are out of line with company performance and have concerns about executives’ spiralling pay.

“Well-run and well-performing companies that yield long-term shareholder returns are critical to ensuring that British savers and pensioners are able to lead more prosperous lives into their later years.”

Business Minister, Margot James MP, said:

“The UK’s largest companies are showing encouraging signs that they are listening to shareholders and wider concerns about executive pay. But with an increase in the number of shareholder rebellions at FTSE 250 firms over bosses’ pay packets - we cannot afford to take our eye off the ball.

“Our responsible business reforms, which will be published shortly, will improve boardroom accountability and enhance our reputation as one of the best places in the world to work, invest and do business.”

The 2017 AGM season was a particularly crucial year for listed companies, since most had to renew their Remuneration Policy which was voted on for the first time with a binding vote in 2014, following the introduction of new government legislation in 2013. This policy is renewable on a three year term and shareholders must now consider the renewal of executive pay proposals for the next three years until 2020.

The IA has long called for more flexible and simpler remuneration. In October 2016, the IA wrote to FTSE350 on executive pay, setting out shareholder expectation and called for the publication of pay ratios, instructing the FTSE350 to improve the disclosure of bonus targets under Government’s Corporate Governance Reform Green paper proposals.

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Linsey White
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Helen Ayres
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• The IA data was collected between January and July 2017 and includes 267 AGMs from FTSE 350 companies.
• Changes in shareholder voting has been based on all votes of 20% as a minimum ‘substantial’ vote against a policy or resolution.
• The 6 FTSE 350 companies who chose to withdraw their remuneration resolutions ahead of their company’s AGM were Aveva, Aggreko, Chemring, Imperial Brands, Hunting, Safestore.

Remuneration

Director Re-election

About the Investment Association:

• The Investment Association is the trade body that represents UK investment managers who manage over £5.7 trillion on behalf of clients
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  • Help people achieve their financial aspirations
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