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Has the UK's pay simplification project hit the buffers before leaving the station?

Last week’s unprecedented result at the AGM of Weir plc – 72.3% against the  remuneration policy vote and 72.24% agains the vote on LTIP amendments (both binding votes) raises some challenging questions for the UK’s pay simplification project currently sponsored by the Investment Association.

One of the central proposals of the interim report was abandoning conventional LTIPs in favour of long-term restricted shares. (see http://blog.manifest.co.uk/uk-pay-for-performance-not-fit-for-purpose/)

Observers might be wondering “how on earth did Weir get it so wrong to get a result THAT bad?” (one of the worst ever according to our 20 year records).

It could be as simple as trying to be ahead of the curve. Weir may be paying the price for pre-empting the IA’s Pay Simplification Project. As noted in their annual report, the Remuneration Committee appears to have taken engagement seriously:

As the annual report noted:  ‘The Committee welcomes the views of shareholders on remuneration on an ongoing basis. In 2015, the Committee consulted extensively with our largest shareholders on changes to our remuneration policy. We are grateful for the constructive input from a number of our shareholders and their representative bodies during the consultation. Within the UK market the Investment Association is leading a working group on the simplification of executive pay, which has not yet published its initial report. A consequence is that during our consultation we received a wide range of views both on simplification and the structure of long-term incentives and our proposals reflect a middle course based on the feedback received, whilst ensuring that the remuneration policy meets our objectives. It is therefore more complex than the views expressed by a number of our shareholders and we also recognise that we are one of the first companies to seek shareholder support for a restricted stock programme that applies to all executives. We support the drive for simplification and will keep our policy under review so that it responds to market and best practice developments as these emerge.’

Will the Pay Simplification Project Work?

  • No (69%, 9 Votes)
  • Somewhat (31%, 4 Votes)
  • Yes (0%, 0 Votes)

Total Voters: 13

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It is also worth noting that the plan would have seen an equally rare REDUCTION in payout from 250% of salary to 165%

The post AGM announcement strikes a very melancholic note with chairman Charles Berry noting that “a majority of shareholders were clearly uncomfortable with a new approach which did not follow standard UK practice.”

So is this just a case of cookie-cutter analysis and robo-voting? Hard to say at this time. What it does suggest, however, is that the simplification project has a way to go to win hearts and minds and clear guidance about expectations will be critical to avoid future AGM showdowns. The coming months are going to be interesting.

What do you think?