Executive pay and reappointment of directors were the leading issues for shareholder dissent last year, according to new research.
Proxy advisers Minerva and the Pensions and Lifetime Savings Association (PLSA) say that more that a fifth of FTSE 350 companies were confronted with major shareholder dissent, defined as votes of more than 20% opposition, for at least one AGM proposal. That amounts to 68 companies and 126 resolutions in total.
A vote of 20% opposition is considered “significant”, according to the UK Corporate Governance Code. Minerva has argued that a more appropriate level for “significant” would be 10%.
In other research, Minerva and PLSA also found that about a third of FTSE 350 chairs could face pressure to stand down over guidance issued in the code revised last year that chairs should not serve more than nine years. Minerva calculates 110 board leaders could face questions about staying in post.
Rebellion on remuneration
On executive pay, 55 resolutions saw some form of shareholder rebellion, a substantial rise on the 38 in 2018. Last month a PLSA report reiterated that executive pay remains a major issue for pension schemes.
Caroline Escott, investment and stewardship policy lead at PLSA, said: “As long-term investors, pension funds are ideally placed to encourage companies to behave in a way that ensures sustainable business success.
“We would also urge scheme investors to use the 2020 AGM season to hold directors individually accountable on issues of continued concern–doing so can be a powerful tool to effect change.
“For instance, in cases where schemes feel that the agreed executive pay packages are not aligned to long-term performance, we recommend that pension fund investors vote against the re-election of remuneration committee chairs responsible for pay practices alongside voting against the remuneration policy or report.”
At the beginning of this year, campaign body the High Pay Centre reported that the average FTSE 100 boss took until just 5pm on 6 January to accrue as much as the annual pay of the average UK worker of £29,553.
Re-election of directors also prompted a wave of rebellions, with 58 resolutions prompting significant shareholder dissent against 54 last year.
Climate also figured among investor concerns, with a number of high-profile resolutions put forward. BP saw 97.72% of its shareholders vote in favour of a resolution from Climate Action 100+, an investor climate campaign, demanding the company set a business plan “consistent” with the aims of the Paris Agreement.
At mining company BHP a resolution was passed requiring the company to end its membership of trade associations that fail to back Paris.
A PLSA statement said the investor activity last year had seen companies improve their policies on everything from alignment with the Paris Agreement to chief executive pensions and improved disclosures.
PLSA’s statement called on investors to maintain the pressure. “How investors choose to act in the 2020 AGM season could have a significant impact on both company behaviour and perceptions of the industry. We would therefore encourage schemes to act on any issues of concern,” the association stressed.
Last week the Investment Forum, an engagement group working on behalf of a number of asset managers, said the constant focus of investors on executive pay and short-term result has created friction with boards.
According to the Forum’s executive director, Andy Griffiths: “If you were to ask a company, ‘Of all the meetings in a year, how do you spend your time?’ overwhelmingly those meetings are on short-term financial progress and remuneration. And those two things are crowding out real conversation about long-term strategic value and broader stakeholder perspectives.”
In September, proxy advisers ISS said investors had told them they wanted to see independence of company chairs higher up the engagement agenda with promises to vote against re-election of board chairs if they are not considered independent.