Companies flaunting fat cat pay deals, all-male boards, and giant pension pots for senior executives will be in shareholders’ crosshairs as the 2019 annual general meeting (AGM) season gets under way.
With environmental concerns mounting and the outsourcing sector still haunted by Carillion’s collapse, shareholders have a lot of issues to raise with companies’ boards.
Here are some of the flashpoints set to dominate investor agendas over the coming months.
Last year’s AGM season was dominated by calls for restraint on executive pay. Most famously, the housebuilder Persimmon ousted its chief executive, Jeff Fairburn, in November after a furore over his £75m bonus. It followed a 64% vote against the payout at its AGM last April.
Anger over excessive pay is not expected to be as pronounced this year, but it is still on the agenda. “Pay obviously is going to be an issue again,” said Alan MacDougall, the managing director of the shareholder advisory firm Pirc.
The rail and airline catering firm SSP was one of the first UK-listed firms to be dealt a bloody nose in 2019 over excessive pay. Around 33% of shareholders’ votes were cast against the remuneration report after its CEO Kate Swann – formerly head of WH Smith – was granted a £1.6m bonus, equating to 200% of her £811,824 salary.
Pirc says it is already concerned about Ryanair’s latest bonus proposals for its chief executive, Michael O’Leary. Under the terms of the scheme, O’Leary will be given share options that could yield a paper profit of nearly €100m (£86m) if Ryanair’s share price hits €21 (£18) [currently €12.68 (£11)] or annual profits double to €2bn (£1.7bn) within five years. “These latest announcements on share option schemes seem to us to be two steps back, as it were,” MacDougall said.
Executive pension plans
The Investment Association, which represents 250 asset management firms with £7.7tn in assets under management, says members are honing in on inequality across pension schemes.
“Our members have been clear this is an issue of fairness and pension contributions should be aligned with the majority of the workforce,” said Andrew Ninian, the IA’s director of stewardship and corporate governance.
The shareholder advisory firm Glass Lewis says every company it has spoken to over the past six months has been urged to give “serious consideration” to investor expectations that payments to executive pension pots be brought in line with their UK workforce.
In order to comply, any FTSE 350 company putting its remuneration policy to a shareholder vote this year will have to cut the pension contributions for newly appointed executives from about 25% of their salary to 16% “as a first step towards parity,” said Martin Garcia Mortell, Glass Lewis’s director of research for the UK and Europe.
Women accounted for just 26.7% of board positions across the UK’s 350 largest listed companies last year, according to the latest Hampton-Alexander Review, and shareholders worry that efforts towards parity have stalled. At the last count there were five UK-listed firms with all-male boards, and 74 have just one woman on the board.
Glass Lewis historically took aim at nominations of committee heads, voting against their re-election if their firms continued to be led by all-male boards.
“This year, however, Glass Lewis and many investors will be turning our attention to so-called ‘one and done’ boards,” Mortell said. “This will likely mean negative voting recommendations at companies where progress has stalled and the nomination committee has failed to acknowledge the issue or disclose a plan of action to address it.”
He said the focus was “due entirely” to fears that many FTSE 350 firms would not meet the Hampton-Alexander target of 33% female representation at board level by 2020.
Shareholders are still shell-shocked following Carillion’s collapse last year and are keeping close tabs on the outsourcing sector as a result.
MacDougall said: “One of the key governance risk areas that we’ve been looking at, and I’m sure will be utmost in shareholders’ minds in 2019, is how the outsourcing sector is getting on post-Carillion.
“We’ll pay particular attention to the financial results when they come out, and we’re looking to identify any weakness in resilience to the pressures they face, and of course whether we think their accounting policies appropriate, again, post-Carillion.”
Fossil fuels and plastics
With climate change concerns mounting, shareholders and activists are expected to hold UK firms to account over their fossil fuel and plastics policies.
Members of the campaign group ShareAction are monitoring companies’ alignment with the Paris climate pact. The group’s senior campaigns officer, Jeanne Martin, said both institutional and retail investors had filed strong resolutions to be voted on by shareholders at the AGMs at some of the world’s largest polluters.
“Some have even committed to voting against directors that have shown persistent inaction on climate change. The 2019 AGM season seems to be the year where investors are saying time’s up to greenwashing and tokenistic climate commitments,” Martin added.
On plastics, MacDougall said every company was exposed to the challenge of cutting back its use. “Those companies that make a good fist of it, there will be a plus-point in terms of the assessment of the companies.
“If you are frustrated by the lack of progress at a company over that issue, you might want to target the chair, or if there’s a chair of a social responsibility or environmental committee on the board, that’s where you might see some flashpoints,” he said.