Big pay battles loom as investors say no to pandemic bonuses

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At Foxtons’ annual meeting on Thursday, shareholders delivered a message to Britain’s public companies: big executive bonuses and Covid-19 are incompatible.

Four in 10 shareholders voted against the company’s pay plan, punishing the estate agent for awarding a bonus to its chief executive for a year in which it received almost £7m in government support, raised emergency cash and suffered a substantial share price fall.

The revolt came after a series of big investors, from Legal and General Investment Management to Fidelity International, urged companies to show restraint around executive pay this year, particularly if they had been hard hit by the pandemic.

While many businesses have taken on board shareholders’ warnings, others have not — setting the scene for a tense annual meeting season.

Other companies in the spotlight over pay include BAE Systems, which handed its chief executive £2m to stay at the business; AstraZeneca because of its decision to increase the maximum long-term incentive plan (LTIP) chief executive Pascal Soriot could receive; and British American Tobacco, over salary rises for executives.

One senior figure at a large UK asset manager said the Foxtons vote showed shareholders had no qualms about holding companies to account over pay in 2020.

“Foxtons’ AGM result should serve as a warning to the market. Bonuses should be off the table for companies that have only survived through government handouts, cutting dividends and furloughing staff,” he said.

Shareholders normally overwhelmingly back pay resolutions. Last year, only 5.2 per cent of shareholders on average voted against the pay report at UK annual meetings, according to Proxy Insight, a data provider.

But this time things are already looking more fraught, with big votes against pay at companies from Hollywood Bowl to Cineworld.

Angeli Benham, senior global environmental, social and governance manager at LGIM, said if companies had taken government or shareholder support, investors would expect them to “show restraint and not continue to pay bonuses”.

“Unfortunately some companies have a different view,” she added.

Although still early in the AGM season, shareholders and advisers to investors have flagged several businesses where they have concerns about remuneration.

Pascal Soriot, chief executive of AstraZeneca © Zach Gibson/Bloomberg

These include National Express, the public transport company, where proxy adviser Glass Lewis criticised plans for a large salary increase for the chief financial officer despite the company not repaying government support, stopping dividends and its share price falling. National Express said the CFO’s overall pay was down substantially in 2020 and would be lower again this year.

Glass Lewis also advised shareholders to rebel against Sig, the building materials group, arguing that the company’s decisions around executive pay were out of kilter with the experience of shareholders and employees, of whom about 20,000 were furloughed.

Institutional Shareholder Services, the world’s largest proxy adviser, has urged a vote against pay at insurer Lancashire Group over executive bonuses, and at Vitec, a small-cap company.

Mirza Baig, global head of ESG research and stewardship at Aviva Investors, the £366bn UK fund manager, said that as well as bonuses, companies needed to think carefully about pay rises.

“Now is not the time to be handing out salary increases to already well-paid executives. Companies should freeze increases and revisit next year at the earliest,” he said.

BAT increased chief executive Jack Bowles’ salary by 3 per cent this year, following a 9.5 per cent increase in 2020, which led to revolt at last year’s annual meeting.

“Following last year’s vote on the remuneration report at the AGM, we have engaged with our shareholders to understand their views in shaping remuneration decisions for 2021,” the company said.

Another area of concern for shareholders is the introduction of so-called restricted share plans, a type of long-term incentive scheme. Unlike the more usual long-term incentive plan, where awards are based on various performance metrics, under a restricted share scheme executives are typically given a smaller but guaranteed number of shares that they have to hold for several years.

Investors are worried that some companies are moving towards restricted shares to ensure executives continue to enjoy bumper pay packages at a time when meeting performance conditions is more challenging because of the pandemic.

© Alamy

“What we don’t want is companies implementing restricted share plans in bad times, but returning to LTIPs in good times,” said Jenn-Hui Tan, global head of stewardship at Fidelity. “It needs to be the right model of pay.”

ISS has urged shareholders to vote against plans for a one-off restricted share scheme at Hostleworld. Glencore has also been criticised by proxy advisers over its new restricted share plan and changes to executive pay.

Investors also have their eyes on so-called “windfall gains”, after some companies awarded shares or options to executives during last year’s market plunge. If share prices rebound over the next few years, executives would reap the rewards. “The Covid dip is a classic that needs to be watched out for,” said Bruce Duguid, head of stewardship, EOS at Federated Hermes.

Ashley Hamilton Claxton, head of responsible investment at Royal London Asset Management, said she was paying close attention to sectors badly affected by the pandemic, such as travel and hospitality.

But she added: “If a company managed its situation well, if profits are up, employees haven’t been laid off and shareholders have benefited, there is no reason to say it wouldn’t be appropriate to pay a bonus.”

For companies that have managed less well, investors are ready to punish the directors who fail to keep remuneration under control. At Foxtons, a third of shareholders voted against the re-election of Alan Giles, remuneration committee chair, and 17 per cent against chief executive Nic Budden.

Baig said that could happen at other companies if boards failed to listen to their shareholders.

“Director accountability will be a key theme in 2021,” he said. “If we disagree with the pay outcome, we will vote against the pay decision and the individuals responsible for making it.”