Pearson Shareholders Revolt Against CEO's $2 Million PayBy and
Board defends Fallon after 61% of investors reject pay report
Compensation vote non-binding, doesn’t require reimbursement
Pearson Plc Chief Executive Officer John Fallon suffered the largest shareholder rebellion so far this year in the U.K., with about 61 percent of votes cast against the education company’s pay report at the annual general meeting on Friday.
The vote on the report, which covers pay for 2016 and includes share awards, isn’t binding and doesn’t require the company to reclaim the money.
In a year that has seen several companies reduce pay awards in order to appease investors, the vote against Pearson’s remuneration report shows a new level of unrest. Earlier this week, satellite technology group Inmarsat Plc registered a 48.9 percent vote against its remuneration report. Housebuilder Crest Nicholson Holdings Plc drew opposition from 55 percent.
“This is a significant rejection from Pearson shareholders," said Stefan Stern, director of the non-partisan High Pay Centre. “It is good to see shareholders using their votes to send a clear message to the board.”
Fallon’s compensation, including salary, bonus, long-term incentives and other benefits, rose 20 percent last year to 1.52 million pounds ($1.97 million), reward for a performance that led to a profit warning and dividend cut in January that sent Pearson’s stock plunging. The company has decided to freeze his salary for this year amid the crisis, with the stock down 10 percent since the start of 2017.
“We do not need millions of pounds paid for shoddy performance,” shareholder John Farmer said from the floor at the AGM. “You have been overpaying for failure.”
Pearson’s shareholders did have some relief ahead of the annual meeting. The company announced 300 million pounds of cost-cutting measures and the potential sale of a U.S. education-publishing business on Friday morning, sending the company’s stock up the most in more than a year.
Elizabeth Corley, head of the remuneration committee, defended the award. She said the Pearson CEO’s compensation was about 30 times greater than that of the average employee, compared with an average multiple of 100 for other FTSE 100 companies.
“It’s a very difficult and demanding job to run a company of this scale and complexity,” she said. “We need experienced and senior talent and it’s our responsibility to get that.”
Chairman Sidney Taurel also defended the package, saying much of the company’s recent difficulty had come about due to market conditions.
“Our role is to be fair and see what is under the control of management and what is not,” he said.
In January, Pearson put its stake in the Penguin Random House book business up for sale to raise cash. That followed months of optimistic statements by Fallon about the challenges Pearson faces in the U.S., where college enrollments and its testing business are down, and textbook sales declined.
Shareholder discontent with Pearson’s approach to pay was also reflected in other votes at the AGM. Almost 30 percent of shareholders who voted opposed the company’s remuneration policy, while 27 percent of shareholders who voted opposed the re-election of Corley.
The 2016 pay increase was largely due to an annual incentive payment of 343,000 pounds, compared with zero in 2015. Fallon’s base salary last year was 780,000 pounds, little changed from a year earlier. The CEO used the bonus payment to buy Pearson shares Friday, while Chief Financial Officer Coram Williams and Taurel also bought more shares, according to the company.