Shareholders voting against executive pay plans increases as consultation closes

Pressure to reject executive pay plans at organisations such as Aviva and AstraZeneca increased just a week after the Department for Business Innovation and Skills (BIS) closed its consultation on executive pay and enhanced shareholder voting rights.

Aviva lost a shareholder vote over its executive pay plans on 3 May, while David Brennan, chief executive at AstraZeneca stood down last week after pressure from shareholders.

This comes shortly after the Executive pay: Consultation on enhanced shareholder voting rights closed on 27 April. The consultation, which opened in March, was announced by Vince Cable, secretary of state for business, on 23 January, as part of a package of measures to address failings in the corporate governance framework of executive remuneration.

This included:

  • Greater transparency in directors’ remuneration reports.
  • Empowering shareholders and promoting shareholder engagement through enhanced voting rights.
  • Increasing the diversity of boards and remuneration committees.
  • Encouraging employees to be more engaged by exercising their right to information and consultation arrangements.
  • Working with investors and business to promote best practice on pay-setting.

The proposed new model for shareholder voting included:

  • An annual binding vote on future remuneration policy.
  • Increasing the level of support required on votes on future remuneration policy.
  • An annual advisory vote on how remuneration policy has been implemented in the previous year.
  • A binding vote on exit payments over one year’s salary.

Katja Hall, chief policy director at the Confederation of British Industry (CBI), said: “Any introduction of binding shareholder votes on remuneration should be on the principles of pay strategy, not on individual remuneration packages.

“This would allow shareholders to have their say on pay, without asking them to make decisions on specific pay packages, which is the role of the remuneration committee.”

Jonathan Exten-Wright, employment partner at DLA Piper, said: “The principal benefit of a binding vote is that it gives shareholders a more effective sanction in relation to the remuneration process than they currently have – ideally that would provide a more powerful incentive to the board and its remuneration committee to design a remuneration policy that is both proportionate and fair.

“An advisory vote, if withheld, certainly carries with it the risk to the board of damaged reputation but evidently that is a risk which some boards have been prepared to take.

“A secondary benefit is that shareholders have a more precise and targeted way of expressing their criticism of a remuneration structure without having to resort to the blunt instrument (permitted by existing law and regulation) of vetoing the reappointment of directors or, in more extreme form, removing directors from the board.”

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