Photographer: Simon Dawson/Bloomberg

Rising Tide of Shareholders Protest Generous U.K. Pay Packages

  • Investors not using all their power to enforce objections
  • Deloitte calls for greater scrutiny of targets by investors

The U.K.’s biggest companies are having a harder time gaining shareholder approval for executive pay packages, as investors take issue with a lack of transparency and disclosures when CEOs get a raise.

The number of companies in the FTSE 100 Index that failed to win at least 75 percent of shareholder votes in support of executive compensation plans almost doubled since 2012, consultant Deloitte said in a report released Monday.

Eight companies in the index missed the 75 percent threshold, while while two failed to secure majority approval for proposed payouts. Just 26 percent of the largest 30 companies on the list garnered the backing of 95 percent of shareholders. Last year more than half reached that mark.

“While we’re still talking about a relatively small number of companies this is rightly a cause for concern," said Stephen Cahill, partner in Deloitte’s remuneration team. "The 2016 AGM season has been bruising for a number of companies, perhaps even more so than the shareholder spring of 2012.”

For more on “shareholder spring” and the backlash against executive pay click here.

Recently, top executives at several large U.K. companies have been penalized after performance fell short. BHP Billiton Ltd. CEO Andrew Mackenzie won’t get a bonus payout following the Samarco dam failure, the company confirmed on Aug. 31. BT Group Plc Chief Executive Officer Gavin Patterson missed out on part of his bonus this year after the company failed to meet customer service targets.

A report published by the High Pay Centre on Sept. 1 called for a crackdown on "rocketing" executive pay, saying it leads to public resentment and poor investment returns. Their analysis showed the average FTSE 100 CEO is paid 6 million pounds a year.

The Deloitte report found that new rules introduced in 2013, which required companies to be more transparent and introduced the binding shareholder vote, as well as pressure from investors, have combined to put the brakes on board pay.

However, it said investors are still largely failing to use their powers to stop companies from implementing arrangements they are uncomfortable with. Generally, their concerns include a lack of disclosure on bonus targets and a lack of transparency about links between executive pay and business performance. Investors also raised concerns over rising pay, especially when there wasn’t a clear justification.

“We believe there needs to be much more rigor in the way the targets for these plans are determined, more discretion used to ensure payouts reflect overall performance, and greater scrutiny by investors once the targets are disclosed,” Cahill said.