In the week that Vince Cable wrote to remuneration committees to urge them to “seize the opportunity to bring pay in line with performance” (see our blog post for details), a few FTSE100 companies were also encouraged by their shareholders to think carefully about pay packages that have been awarded. Those companies will also now need to consider whether the votes against either aspect of their DRRs were “significant”.
Seven FTSE100 companies’ AGMs were held during the four-day week that followed the Easter break. Three of those (Aggreko, Anglo American and Hammerson) passed both the policy report and the implementation report voting test with ease, with more than 90% of votes being cast in favour of both elements of the DRR. Reed Elsevier was not far behind, with a 93.8% approval of the policy, and an 89.1% approval of the implementation report.
However, while AstraZeneca, Barclays and Pearson’s policy reports were voted through relatively comfortably (with 85.0%, 93.2% and 95.8% of votes in favour respectively), the same cannot be said for those companies’ implementation reports. 76.0% of votes cast were in favour of Barclays’ report detailing pay in the prior year, Pearson’s implementation report was backed by just 65.8% of voters and AstraZeneca received only a 61.5% vote in favour.
Putting to one side the actions of some shareholders at Barclays’ AGM last week (and the somewhat unusual comparison of Barclays to Colchester United), it is relatively rare for shareholders to publicly explain what their concerns relate to when they vote against DRR resolutions. This is, no doubt, why the new Directors’ Remuneration Reporting regulations state that, where there is “a significant percentage” of votes against either the policy or implementation report, the following year’s DRR must include a statement which sets out a summary of the reasons for these votes (as far as known to the directors), as well as any actions taken by the directors in response to those concerns.
So, question one for companies is “what level of voting actually constitutes a “significant” vote against?”. As noted in our previous post, easyJet’s pass marks of 55.0% (policy) and 55.5% (implementation) look to have been significant, although those numbers may be explained to shareholders by the facts that the Haji-Ioannou family hold 37% of the shares and Sir Stelios has made no secret of his disapproval of the remuneration package of the CEO, Carolyn McCall.
But what for AstraZeneca, Barclays and Pearson? And indeed what for Carnival, whose results (which, as noted last week, despite the meeting being held on Thursday 17th, were released on Tuesday 22nd April) make grim reading, with a policy report vote of 61.9% in favour and only 58.6% of voters backing the implementation report?
The GC100 guidance states that companies will need to use their judgement as to what level of votes against constitutes “significant”. As a guideline, the paper suggests that “companies may wish to consider votes against in excess of 20% as being significant, although there may be reasons why, for some companies, a higher or lower level might be more appropriate”. If the 20% level is adopted, this would catch AstraZeneca, Barclays, Carnival, easyJet and Pearson, meaning all would address the point in next year’s DRR.
The GC100 also suggested that “companies may wish to consider disclosing in the annual remuneration report the level of votes against that they deem to be “significant”” (none have so far) and also “where the board considered the outcome to be a “significant” vote against…the company may also wish to consider including a statement to that effect in the RIS announcement relating to the results of the AGM” – again, not one announcement has spoken to the level of votes (yet). Having said that, you can understand a company’s reticence in conceding immediately that the vote against is “significant” given the provisions are new and there is no established market practice.
Perhaps the GC100’s suggestion as to the 20% level will be unheeded. Perhaps, in the fullness of time, the 20% will prove to be the tipping point. Perhaps it’s just that no one, as yet, is prepared to be the first to concede…
NB It’s worth noting that Pearson’s policy report vote follows the trend of the other four FTSE100 companies that have released an addendum to the policy report following the publication of the Annual Report. Pearson (which released the addendum at the start of the month) receiving a resounding backing from shareholders – 95.8% of votes cast were in favour. Indeed, the “lowest” vote for a policy that has been clarified by an addendum is that received by Aberdeen Asset Management, with an 86.3% vote for the report. This presumably means that all of the addenda did their job.