European investors beef up stance over high executive pay

People more willing to issue a challenge to directors, says consultant

Attracta Mooney

Excessive executive pay is under greater scrutiny in Europe as investors rebuff big pay packets for chief executives and take aim at directors who refuse to tackle concern over bumper bonuses.
A report by Georgeson, the shareholder engagement and governance consultancy, said that this year at least one in 10 shareholders opposed pay report resolutions at 53 per cent of annual meetings in Italy, up by 20 per cent compared with 2017.
In the FTSE 100 index of the UK’s biggest companies, challenges were up 39 per cent, while in the Netherlands, 22 per cent of remuneration proposals were opposed by at least one in 10 shareholders, up by close to half compared with 2017.
The increase in the number of protests comes as policymakers and the public continue to criticise huge payouts to chief executives. Last week Jeff Fairburn, chief executive of UK housebuilder Persimmon, was forced to leave his job after protracted controversy over a £75m bonus award.
Domenic Brancati, chief executive for UK and Europe at Georgeson, said big investors were under pressure, prompting many to refine voting policies affecting pay reports and the directors who sign off remuneration.
“Institutional investors are putting limits on what they think is justifiable pay. People are not frightened to [cast] those [opposing] votes any more,” he said.
According to the report, in Germany 56 per cent of remuneration system votes were not supported by at least one in 10 shareholders, while in Switzerland 65 per cent of remuneration report resolutions were contested.
Royal Mail, the British postal business, Telecom Italia, carmaker Renault and consumer goods giant Unilever were among companies that suffered large revolts over pay at their annual meetings.
There was also a rise in shareholder protests over director re-elections. Mr Brancati said shareholders were becoming reluctant to back directors who signed off excessive pay packages, had too many jobs or did not turn up for work. “Investors are becoming much more willing to oppose board members directly,” he said.
The number of director election proposals at large companies that were opposed by at least one in 10 shareholders has doubled since 2016 in the UK and France. In Germany, there was a 114 per cent increase in the number of contested proposals relating to the discharge of the management and supervisory boards since last year.
Iain Richards, head of governance and responsible investment at Columbia Threadneedle, said investors were joining the dots between votes on pay reports and votes on director re-elections.
“That is clearly a welcome development. It is important that the issues are being addressed properly,” he said.
The Georgeson report also found that when ISS or Glass Lewis, the world’s largest proxy advisers, recommended a vote against a resolution, companies often suffered a significant shareholder protest.
In the UK, one in five resolutions had a protest vote of at least 20 per cent when ISS or Glass Lewis had issued a negative recommendation. That number jumped to 98 per cent of resolutions in France and almost 96 per cent in Switzerland.
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