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More companies face investor opposition to executive pay this week

Standard Life, which as an institutional investor is known for its stewardship approach, faced opposition to the pay awarded to its chief executive, Keith Skeoch at its recent AGM (17th May). The investment and insurance company received a 22% vote against it remuneration report. This week’s other UK AGM results also showed continuing disquiet among shareholders about executive pay.

Prior to the meeting Skeoch had voluntarily decided not to accept the maximum amount awarded to him in 2016 under the Standard Life executive long-term incentive Plan (LTIP).  As a result, his award under the 2016 LTIP, which was disclosed in the company’s annual report for 2015, had been reduced from 500% to 400% of salary. Speaking at the AGM the company’s chairman, Sir Gerry Grimstone welcomed Skeoch’s decision, saying “I personally applaud it as being the right thing to do in the circumstances.” However many investors would have voted prior to this change being made.

Manifest had given Standard Life a low E grade for its remuneration citing the lack of a direct alignment between the company’s strategy and key performance indicators (KPIs) and incentive arrangements. The analysis also identified the potential for excessive levels of incentive pay and that LTIP targets had been changed retrospectively. There was also a lack of disclosure of annual bonus targets. There was also significant amounts paid to the former chief executive, David Nish, who was on gardening leave from his resignation in August last year until the end of March when he ceased to be a Standard Life employee. Until that point Nish was entitled received his salary of £835,000 per annum and was entitled to his bonus and received a payment of £105,981 in respect of untaken holidays, and £560 in respect of private medical cover.

Grimstone said at the AGM that, “We must have good people managing our company who are fairly incentivised in what is a global market place but this doesn’t mean we shouldn’t be conscious of our societal impact and the views of others. When we appointed Keith Skeoch to replace David Nish last year, the remuneration committee restructured his pay to reflect his new responsibilities running both a global investment company and a life assurance business. We believe in pay for performance and although, compared to his predecessor, the variable component was increased, his basic salary was decreased, deferral was lengthened, and shareholding requirements were tightened. We also set stretching targets so that the highest levels of reward required very high performance.  The fact is that many of our shareholders agreed with us on this – other’s didn’t.

 “Attitudes towards what is appropriate remuneration constantly evolve and what is right one year isn’t necessarily right the next.  We listened to the feedback and discussed what to do. “

Other governance issues identified by Manifest were in relation to Grimstone who though independent on appointment now has issues with tenure and a material business relationship. Additionally there was the lack of a senior independent director – however  Kevin Parry has now been appointed to this role.

Standard Life also announced that it would appoint KPMG to replace PricewaterhouseCoopers (PwC) as its auditor for the year ending 31 December 2017 and would seek shareholder approval for this at its next AGM. This follows a competitive tender which did  not include PwC – it has served as Standard Life’s auditor since 1994 having won the last tender in 2003.

Betting company, Paddy Power Betfair, suffered a 32% vote against its remuneration report at its AGM (18th May) . The company has changed its remuneration policy significantly since Paddy Power merged with it rival, Betfair. At the EGM in December last year which approved the merger there was an advisory vote on the new policy which received a 18% vote against. As the company is incorporated in the Republic of Ireland the vote was not binding. The company said that the opposition of some shareholders was primarily related to the termination arrangements for Andy McCue who was chief executive of Paddy Power from January 2015 until the merger in February this year and then served as chief operating officer and was on the board as an executive director until the end of April. The company said this was a not a standard arrangement and would not be repeated in the future. In the event of early termination the company had said it would pay McCue 250% of annual salary, pension and benefits in lieu of notice

Manifest gave the remuneration of the group a grade D noting that the LTIP performance measures use absolute targets; performance measures not clearly linked to KPIs; performance was not measured against a peer group and there was potentially excessive levels of incentive pay.

At the AGM last Tuesday (17th May) of Regus, which provides global office outsourcing services,  there was a 17% vote against its remuneration policy and a 26% vote in opposition to its remuneration report. Manifest’s analysis had graded its remuneration as D. The company was awarding Mark Dixon, its chief executive, a large pay rise of 41% to £825,000 in 2016 from £587,000.  The company said Dixon’s rise was justified “in the context of the external environment to reflect the market rate for an executive who has led the company through a period of outstanding success and is effectively implementing an ambitious profitable growth strategy.’ Manifest noted that the level of incentive pay was also potentially excessive and there had been a ratchet up of total remuneration.

There was a 20% vote against the remuneration report of estate agency company, Foxtons, at its AGM (18th May). The company’s remuneration policy had been graded C by Manifest. The analysis noted there was a substantial increase in salary for the chief executive, Nic Budden, in 2016 rising by 19% to £550,000 from £461,250 in 2015. The company said that Budden’s pay was relatively low when he was appointed in July 2014 and this increase reflected that since then he had “demonstrated strong leadership and has handled well the increasing complexity and size of the business.”

Following the AGM Foxton’s board stated that, “The remuneration committee consulted with the majority of the company’s shareholder base regarding the remuneration policy prior to the AGM and this is reflected in the significant level of support received for the directors’ remuneration report.  We recognise, however, that not all shareholders have voted in support and we value their feedback.  The remuneration committee will continue to have a dialogue with major shareholders regarding remuneration matters ahead of the 2017 AGM when the company’s remuneration policy is next scheduled to be put to the vote.”

What do you think?