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More companies face investor concerns over pay at AGMs

Shareholders have again showed their discontent over excessive executive pay packages with large votes opposing remuneration reports and policies. Engineering company Weir lost its binding vote on its remuneration policy – with a 72% vote against – while at building materials supplier CRH there was a 41% vote in opposition to its policy although in its case the vote was advisory as the company is not incorporated in the UK.

Responding to the opposition of shareholders to its new remuneration policy and LTIP the company’s chairman, Charles Berry, stated, “The policy was designed to ensure fairness and consistency across senior management levels and followed extensive consultation with shareholders, who held a wide range of views. During those discussions there was broad acknowledgement of the issue facing many companies, including Weir, of how to effectively recruit, retain and incentivise senior management, across multiple territories, when market conditions beyond their control remain challenging for a sustained period. While acknowledging the issue faced by the group, a majority of shareholders were clearly uncomfortable with a new approach which did not follow standard UK practice.

“The Board looks forward to further engagement with shareholders regarding remuneration, as we jointly develop a revised policy for consideration in the future. We encourage all shareholders to actively participate in this process, as without this engagement their views can’t be reflected in developing proposals which are relevant for the Group. In the meantime, Weir will continue to operate under the remuneration policy which was approved by shareholders in 2014 and which runs until 2017, with awards made tomorrow under these rules.”

Responding to the vote Sarah Wilson, the chief executive of Manifest, said: “This is one of the most significant voting results of all time. However it also raises questions about the Pay Simplification Project if the first attempt at simplification meets with such stiff resistance.”

Building supplier CRH was also flagged by Manifest in its remuneration governance assessment for a poor alignment between executive remuneration and company strategy with total remuneration awarded and received above expectations given the company’s performance. Manifest also calculated that for the lead executive, total remuneration for the forthcoming year would increase by approximately 30% and the aggregate maximum potential incentive pay for the chief executive in respect of the year exceeded 590% of salary.

Commenting on the low level of support for its new remuneration policy CRH said, “The chairman of the remuneration committee met with CRH’s major shareholders in January and February 2016 to discuss revised remuneration policy proposals.  Shareholders expressed a wide range of differing views on the proposals, which the committee considered in drafting the new remuneration policy.  Following publication of the AGM agenda, the Company also engaged with a number of shareholders who were not involved in the initial consultation process; this provided the Remuneration Committee with additional shareholder perspectives on remuneration.

“Over the coming weeks, the remuneration committee will analyse the voting outcome in detail and will contact individual shareholders to more fully understand their perspectives, as appropriate.  In the meantime, in keeping with CRH’s longstanding open approach to shareholder engagement, the chairman of the remuneration committee welcomes the opportunity to discuss the outcome of the vote and remuneration matters generally with shareholders.”

Pharmaceuticals company Shire had a 49% vote against its remuneration report. Shire said, ” We have engaged extensively with our major shareholders on the remuneration report and acknowledge the vote today. We remain firmly committed to a constructive and appropriate dialogue to fully understand shareholder views as we compete in a global market place.”

Manifest had graded Shire’s remuneration as a D and raised concerns that the level of executive pay could be deemed as excessive given the recent performance at the company. The analysis noted that the aggregate maximum potential incentive pay for the chief executive in respect of the year exceeded 1020% of salary and salary for the lead executive has increased by 17% was set to rise by 25% in 2016.

Real estate firm, Countrywide, had a 21% vote against its remuneration report, and a 14% vote against the re-election of a non-executive director, Caleb Kramer. The company acknowledges Kramer is not independent as he is managing director at Oaktree Capital Management (UK), a substantial shareholder of the company. Manifest also noted Kramer’s poor attendance at committee and board meetings. Manifest had graded the company D in relation to its remuneration. Amongst the concerns was a 13% salary increase from £300,000 in January 2015 to £340,000 in June 2015 for its finance director, Jim Clarke.

The company said the remuneration committee would be conducting a detailed review of the remuneration policy during 2016 and will consult with major investors in advance of the 2017 AGM.

Meanwhile major investment group, Schroders, suffered a 15% vote against Michael Dobson’s re-election as a director. Dobson had served as chief executive for 14 years and has now been appointed as chairman. The UK corporate governance code recommends that the Chairman should, on appointment, meet the independence criteria set out in the code. The company had stated in its annual report that, “We have consulted the major shareholders of the Company to explain clearly the reasons behind this decision. Michael Dobson has enjoyed the strong support of the shareholders as chief executive and we believe that he will, as chairman, continue to serve their interests as effectively as he has in the past.”

Following the AGM Philip Howard, senior independent director, at Schroders said,”The Company notes that more than 85% of shareholders who voted supported the re-election of Michael Dobson. As I have explained previously, the board, before proposing Mr Dobson as chairman, consulted with its major shareholders and this engagement will continue. The board expects to appoint two new independent non-executive Directors by the end of this year at which time the board will comprise a majority of independent directors.”

What do you think?