Growing shareholder challenge to FTSE 100 pay

Shareholder protests against excessive executive pay deals are increasing, with a quarter of FTSE 100 companies receiving more than a 20% vote against a pay resolution, three times as many as in 2017, according to a mid-season report from PwC

The firm’s analysis of the first 24 AGM results of FTSE 100 has found that one in five remuneration reports have had 20% or more of shareholders vote against resolutions, compared with 7% last year.

The influential proxy advisor Institutional Shareholder Services (ISS) has increased its ‘against’ voting recommendations three-fold on 2017 and this has been reflected by a drop in the level of support for pay recommendations among FTSE100 firms.

Adding in remuneration policy votes, nearly one in four pay votes (24%) exceeded 20% shareholder opposition. These companies all now appear on the Investment Association register and will be expected to publish a statement on how they will address shareholder concerns.

Shareholders have also increased the pressure on remuneration committees to use their discretion to overrule formulaic outcomes. So far, 25% of firms have applied discretion for a variety of reasons but in the majority of cases have applied a reduction to one or both of the annual bonus or long term investment plan (LTIP) outcomes.

The overall environment of pay restraint continues, with one third of CEOs having their base salary frozen for 2018, with a median figure of £1,007,000 compared with £997,000 last year. The median single figure of pay has increased by 1.7% from £4.279m to £4.351m.

Overall 61% of CEOs saw an increase in their total pay in 2017 compared to 2016, and 39% of CEOs saw a decrease. The upper quartile single figure increased by 13%, meaning one in four CEOs in the sample earnt more than £7.6m.

Tom Gosling, PwC reward and employment partner, said: ‘The 2018 AGM season is now in full swing and early signs are that shareholders are coming down hard on any signs of pay inflation returning.

‘This is despite data showing no material movement in the median level of overall pay for CEOs, continued restraint on salaries, and even some emerging suggestion that pay levels may be trending down.’

Gosling highlighted the significance of the role of external advisers in challenging pay policies, suggesting that this is resulting in ‘collateral damage’, particularly in special circumstances or when companies make proposals that are outside the norm and so require investor judgement.

‘Companies need to take this year’s season as a warning against returning to the ways of the past, but at the same time investors need to find a way of ensuring that fruitful innovation is encouraged, and that the good doesn’t get thrown out with the bad,’ he said.

Report by Pat Sweet

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