Small employers face shareholder dissent over pay

One in five small UK organisations has experienced major objections from shareholders to their pay packages in 2013, according to research by KPMG.

The research, which analysed shareholder voting at annual general meetings up to 31 May 2013, found that 20% of the FTSE small cap index had votes against their remuneration committee report in excess of 20%.

In contrast, among FTSE 100 companies, the level of shareholder dissent has halved, from 6% in 2012 to 3% in 2013.

The Department of Business, Innovation and Skills’ (Bis) regulations, which come in to effect from 1 October 2013, will oblige organisations to produce two reports on pay.

One is a policy report that will require organisations to set out their remuneration policy for the next three years for shareholder approval in what will be a binding vote, in contrast to today when the vote is advisory only. 

The second report will be on the organisation’s implementation of existing remuneration practices and is backward looking. Here, the vote remains advisory.

Only 15% of FTSE 100 organisations are already adopting some of the main elements of the new reporting format, while 5% of FTSE small cap organisations are doing so.

David Ellis, head of reward at KPMG UK (pictured), said: “We have seen a steady increase in enquiries from small caps asking for help in preparing for the new two-reports format. 

“Particular challenges they face are: clearly linking the elements of pay to strategy, formulating a policy that shareholders will approve but gives the remuneration committee sufficient flexibility and the ability to exercise discretion when needed, and producing the required information in the prescribed format.

“With over half of the voting season done, it seems fair to say that we’ve seen something of a resurgence of the ‘shareholder spring’ among the small caps, but a marked decline in dissent on pay at the larger end of the market. 

“Where we have seen shareholders objecting, it’s been similar to last year in that the dissent relates to specific circumstances and issues. These are usually not solely pay related, but instead driven by a combination of dissatisfaction around corporate performance and the leadership of the business.”