12 May 2017
Ahead of this year's shareholder meeting season, investors predicted more fiery and confrontational exchanges than in previous years, as they prepared to take a stand against high executive pay.
But British companies have largely dodged the fireworks. Only two big FTSE groups, educational publisher Pearson and housebuilder Crest Nicholson, have lost votes on pay after attempting to push through more generous packages.
There have been significant protest votes elsewhere, including at FTSE 100 pharmaceutical group AstraZeneca, satellite operator Inmarsat, and Drax, owner of the UK's largest power plant.
Thirteen FTSE 350 groups have recorded dissent votes of more than 20 per cent against their remuneration reports so far this year, according to data from Manifest, the voting agency.
But none of these upsets has been as momentous as investors' rejection of Bob Dudley's pay package at BP's shareholder meeting last year, the one-third vote against Sir Martin Sorrell's £70m remuneration at WPP, or the day when FTSE 250 engineer Weir, drugmaker Shire and building materials group CRH all suffered 40 per cent votes against their pay proposals.
Instead, data show that companies that were the outliers on pay have been brought closer into line, as remuneration committees have announced significant changes to executives' pay to stave off investor ire.
Data from PwC show that top paying companies have reduced the average amount paid to bosses significantly more than businesses with less generous policies.
Investors say companies - which have also come under political pressure to cut executive awards - have largely got the message from last year's "shareholder spring" and have put more effort into talking to their investors ahead of key votes.
"In the discussions we have had [with companies] during the past few months, we have seen a lot of companies move from being slightly gung ho to very conservative," says Paul Lee, head of corporate governance at Aberdeen Asset Management. "A lot of what is coming up for votes is pretty uncontroversial."
Stefan Stern, director of the High Pay Centre, adds: "There is a sense lots of people are trying to be on their best behaviour because people have to answer for their actions."
Some of the most striking concessions include BT cutting the pay of its chief executive, Gavin Patterson, by £4m in the wake of the group's Italian accounting scandal; BP reducing Mr Dudley's pay by 40 per cent and WPP lowering Sir Martin's by 30 per cent. Both BP and WPP also reduced the maximum amount their chief executives can earn in future.
Other groups in the spotlight over pay last year, including consumer group Reckitt Benckiser, medical devices maker Smith & Nephew and miner Anglo-American, have also cut pay.
The concessions made by boards seem to have paid off. Few of those at the top of investors' hit lists last year have remained there, based on shareholder votes so far.
BP and WPP still have their annual meetings to come, but there is little sign they are heading for investor rebellions on the scale of last year. At Shire, 8 per cent of shareholders opposed the remuneration report compared with 51 per cent a year ago.
Smith & Nephew recorded a 1 per cent protest vote on its remuneration report against 57 per cent in 2016. At Anglo-American, 5 per cent of votes were cast against the pay report compared with 48 per cent. All of the UK banks, including Barclays and RBS, have avoided upsets.
There are still signs of corporate deafness, particularly around the triennial binding votes on pay policies faced by a swath of companies this year.
While nine FTSE 350 groups have lost an advisory vote on their remuneration report since 2013, according to data from Manifest, only two have lost the binding vote on policy: Weir last year and Kentz Corporation, then a listed engineering and construction business, in 2014.
This year some companies - including Imperial Brands, the tobacco company, and interdealer broker TP ICAP - have pulled pay policy proposals to avoid a formal defeat by shareholders.
"We haven't really seen that before - the concept of having to pull your resolution," says Andrew Ninian of the Investment Association. "That might show [advance] votes coming in much stronger against [the proposals] than maybe companies anticipated."
Leading investors are largely positive about the higher levels of engagement with companies.
"It feels like the shareholders are being listened to more than in the past and that they have, and are applying, more leverage or influence," says one.
But there are still concerns about whether the listening exercise can be sustained. In the 2012 shareholder spring, investors gave WPP a bloody nose over Sir Martin's £6.8m pay package. Even under his slimmed down deal from 2021, he will pick up around £13m.
Some pay experts warn that despite the tougher stance from investors this year, the issue of high executive pay is not yet off the table.
"I don't think investors can sustain the current level of activity," says Mr Stern. "There's a systemic problem with executive pay, and I don't think remuneration committees have the solution."
Additional reporting by Kate Burgess and Philip Stafford
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