U.K. Business Lobby Seeks Lower Threshold for Executive-Pay Vote

  • WPP, Ashtead risk binding shareholder vote under proposal
  • CBI proposes ‘escalation mechanism’ to hold firms to account

Advertising giant WPP Plc and construction-services company Ashtead Group Plc would face binding shareholder votes on executive pay if proposals by the U.K.’s main business lobby group were already in place.

The Confederation of British Industry has proposed lowering the bar for such votes, which companies that lose a yearly advisory ballot on remuneration currently must hold at their next annual general meeting. The proposal would broaden the requirement to companies facing 20 percent shareholder opposition two years in a row.

“An effective response should focus on tackling those firms that persist in making payments that shareholders regard as egregious or inconsistent with company performance,” the CBI, which lobbies for 190,000 companies, said in written testimony to Parliament’s Business Committee. “This escalation mechanism represents a proportionate response that focuses attention on companies where shareholders view pay policies as most problematic and shareholders’ actions have been disregarded.”

Prime Minister Theresa May has signaled that she’ll be less willing to cozy up to business than her predecessor, David Cameron. In a speech last month to the Conservative Party Conference she took a swipe at international “elites.” During her campaign to become prime minister, she vowed to rein in executive compensation and to close the gap in pay between workers and bosses.

Governance Changes

Executive pay is set to be included in a proposed overhaul of corporate governance due before Christmas from the Department for Business, Energy and Industrial Strategy. 

Under current rules, oil company BP Plc and medical-devices manufacturer Smith & Nephew Plc will have to submit their compensation policy to a binding vote at their next annual meetings, after more than half of shareholders rejected those companies’ executive pay reports this year. 

If the CBI proposal were already in place, it would affect two other members of the U.K.’s benchmark FTSE 100 Index, according to Bloomberg analysis of AGM reports for the 96 members that have held annual meetings this year: WPP and Ashtead.

Ashtead declined to comment. A WPP spokesman said the company’s next binding vote on its pay policy is due next year in any case, but declined to comment specifically on the CBI proposal.

At WPP, which paid Chief Executive Officer Martin Sorrell more than 70 million pounds ($87 million) in 2015, about one-third of shareholders voted against the corporate pay report at the annual meeting in June, after about one-fifth did so last year. At Ashtead, about one-quarter of shareholders rejected the pay report this year and last year.

Three-Year Cycle

Under current rules, companies must set executive pay within the guidelines laid out in their remuneration policy. The policy is subject to a binding vote every three years, while the compensation package for executives is laid out in an annual report that’s subject only to an advisory vote. If shareholders reject the report, it triggers a binding vote the following year on the policy, regardless of where the company is in the three-year cycle.

Stephen Cahill, head of executive remuneration at the consultant Deloitte LLP in London, said that even though the proposal falls short of requiring annual binding votes on pay for all companies, it could persuade companies to rein in compensation for fear of facing a shareholder revolt.

“You don’t want to be the company who has to do this,” he said in a phone interview.

The CBI said the proposals are supported by its members, and that it’ll wait to see what’s included in the business department’s consultation before submitting ideas to the government. In its evidence to the Business Committee, a cross-party panel of lawmakers, the lobby group stopped short of calling for mandatory yearly polls.

“The introduction of annual binding votes would be a disproportionate response,” it said. “Such a move could lead to shareholders being less willing to cast a negative binding vote as opposed to an advisory vote, because of the potential destabilizing consequences for CEO motivation and retention.”

Drugmaker Shire Plc narrowly escaped losing this year’s vote, with 49.5 percent of shareholders opposing its pay deal -- meaning it would need to avoid a 20 percent opposition vote next year to escape a theoretical mandatory vote. The same applies to Anglo American Plc, Paddy Power Betfair Plc, Standard Life Plc, Bunzl Plc and Babcock International Group Plc, which all had opposing votes in excess of one-fifth in 2016.

— With assistance by David Hellier

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