Photographer: Simon Dawson/Bloomberg

U.K. CEOs Take Pay Cuts as Investors Scrutinize Wage Packets

Updated on
  • PM May has put executive pay high on the agenda since Brexit
  • Crest Nicholson becomes latest co. to have pay report rejected

Bosses of Britain’s public companies rarely look forward to facing off with their shareholders, but the run-up to this year’s annual general meeting season is provoking a particularly strong sense of anxiety.

Executive pay is high on the political agenda, with the government wrapping up a consultation exercise on the issue just last month and Prime Minister Theresa May repeatedly framing Brexit as a vote for a fairer society.

With a spate of executive pay policies coming up for renewal in coming weeks, some companies are responding to the pressure by cutting bosses’ remuneration. Others are banging on the doors of shareholders from Aberdeen Asset Management Plc to Legal & General Investment Management, asking them to look at pay proposals before they’re put to a vote -- even when they’ve had no problems in the past.

“There’s scrutiny on executive remuneration by everyone,” said Eugenia Jackson, head of corporate governance research at Allianz Global Investors, who’s been consulting with companies her firm has stakes in. “When we see that a company is underperforming and are still paying for when times were good, it makes it difficult for us to be supportive.”

About three-quarters of FTSE 100 companies are due to renew their pay policies this year, and with remuneration now having to go to a mandatory vote, there’s a real risk of them being voted down. An early sign of shareholder militancy came on Thursday, when investors in housebuilder Crest Nicholson Holdings Plc rejected the directors’ pay report.

Battlelines Drawn

Many of the U.K.’s biggest shareholders have signaled that excessive pay won’t be tolerated.

L&G, the U.K.’s largest manager of pension assets, is leading a group of investors calling for companies to publish the pay ratios of senior managers versus employees in their annual reports. BlackRock Inc., the world’s biggest asset manager, added to the pressure in January by urging the chairmen of 300 top companies to curtail excessive increases.

May called the pay gap “unhealthy” when she was campaigning for the Conservative Party leadership last July. A FTSE 100 boss earned 128 times more than an average employee in 2015, up from 47 times in 1998, while CEO pay jumped to 4.3 million pounds ($5.4 million) a year from about 1 million pounds, government data show.

Companies are starting to respond in an attempt to avoid embarrassing shareholder revolts, government censure and, potentially, tougher legislation.

‘We Hear You’

Anglo American Plc, which last year saw its pay proposal opposed by more than 40 percent of shareholders, has curbed how much top executives can benefit from spikes in the share price. BP Plc is widely expected to make adjustments to its policy after shareholders rejected its pay deal last year, while cigarette manufacturer Imperial Brands Plc in January dropped plans to give CEO Alison Cooper a multi-million pound raise, heading off a potential shareholder rebellion.

“More companies are saying, we hear you, and here are the changes you asked for,” said Sacha Sedan, director of corporate governance at L&G’s investment unit. “Last year’s remuneration votes had an effect, but so did the PM’s speech, the government’s green paper on corporate governance and Imperial Brands’s decision.”

Not every company is in the mood to compromise. The bosses of AstraZeneca Plc and Royal Dutch Shell Plc have both had their pay increased by more than 60 percent, while Rolls-Royce Holdings Plc awarded its chief a near 1 million-pound bonus after profit dropped by almost half, drawing criticism from the Institute of Directors.

Wider Concerns

“If a guy was hired on a certain salary and on a certain long-term pay structure, then why do we need to see those numbers trickling upwards?” said Paul Lee, head of corporate governance at Aberdeen, which voted against 9 percent of pay resolutions last year. “There needn’t be an assumption that it will always inexorably rise.”

While companies have been preoccupied with remuneration, the reappointment of non-executive directors is also expected to attract attention when the AGM season starts in earnest in April. Investors including AGI want to see more diversity and breadth of expertise on company boards. And others, like Hermes Investment Management, will be paying close attention to disclosure on climate-change policies, particularly in the mining and energy sectors.

“I expect to see a tough season and to see higher votes against companies,” AGI’s Jackson said. “Investors are growing impatient about changes to company practices. It’s about credibility and real risk for the perception of those businesses.”

— With assistance by Thomas Biesheuvel

(Updates with Crest Nicholson pay rejection in fifth paragraph.)
    Before it's here, it's on the Bloomberg Terminal. LEARN MORE