The increase in dissatisfaction amongst shareholders follows Proxy Agencies issuing eight recommendations to vote against or abstain from voting on top 30 firms’ remuneration reports in 2018 – significantly higher than the two against recommendations issued in 2017. This is despite median CEO pay levels falling slightly and average share prices rising in the top 30 firms.
In comparison, in the FTSE 100 as a whole, 14% of companies received less than 80% approval, versus 8% in 2017 this year.
There were 14 recommendations from Proxy Agencies to vote against or abstain remuneration resolutions in the full FTSE 100, compared to 10 in 2017. Eleven of the fourteen companies who received a vote against or abstain from the Proxy Agencies received less than 80% approval which shows their influence.
Of those firms receiving lower votes on remuneration, four were ‘repeat offenders’ – firms who also received low votes last year.
Stephen Cahill, vice-chairman at Deloitte, said: “Despite a quieter AGM season last year, the 2018 season has shown that executive pay remains an area of shareholder focus. We have seen a much more challenging voting season, in particular for FTSE 30 companies, despite it not being a policy year for the majority. This reflects a tougher stance taken from proxy agencies in respect of the largest companies, as well as continued pressure on repeat offenders.
“Shareholders and proxy agencies are increasingly hardening their line not just on pay levels, but where companies are failing to act on previous concerns, in particular around transparency of pay arrangements,” he added.
Pay levels remain constant
For CEOs in the FTSE Top 30, pay fell slightly in 2017 while there was a c’10% increase across the whole FTSE 100. The median single figure package for a FTSE 100 CEO was around £4m in 2017, up from £3.6m in 2016 but down from £4.3m in 2015. More than a third of FTSE 100 CEOs received no increase in base salary in 2017.
Bonus pay-outs in respect of 2017 performance remained constant, with a median of 72% of maximum compared with 77% two years ago.
Cahill commented: “The increase in pay for executives of FTSE 100 firms reflects higher levels of performance based vesting under long-term incentive plans this year, and strong market growth in the FTSE 100. Companies should be looking to ensure that success sharing opportunities exist across the workforce, and we are supportive of recent Government-led measures to broaden the focus of remuneration committees in this area. Indeed, we have seen some positive moves from remuneration committees, in particular in the improved alignment of executive and workforce pension arrangements, which we are beginning to see implemented in practice”.
He concluded: “There is a growing expectation that remuneration committees have the power to reduce pay outcomes where they are excessive or unexpected, as reinforced by recent changes to the UK Corporate Governance Code. Going forward, we expect to see investors and regulators place increased focus on how these powers are used.
“Given the uncertainty in the wider UK business environment, there needs to be a recognition that successful executives should be paid for delivering shareholder returns. However, there should be an equivalent acceptance that executive pay has to stand up to external scrutiny and, in particular, not be excessive when performance does not justify it.”
Remuneration data ‘2017’ captures financial year ends between March 2017 to February 2018.
Voting outcomes ‘this year’ refers to AGMs held in the calendar year to 31st July 2018. Voting outcomes ‘last year’ refers to the calendar year 2017.
Maximum is the maximum incentive opportunity available.
Vesting refers to the % of maximum that has paid out under a long-term incentive plan.