--- Updates with result of Schroders vote and comment from director ---
Top City fund manager Hermes has slammed plans by several big companies to hand their bosses hefty wage rises and bonuses as a backlash against “fat-cat” pay deals grows.
Hermes, which has 42 clients and advises on £154.7bn of assets for major pension funds, is advising shareholders to oppose pay proposals at drug group Shire Plc (LON:SHP) and oil & gas companies Tullow Oil PLC (LON:TLW) and Weir Group PLC (LON:WEIR).
It said it could not support Shire's plans to increase the salary of its chief executive Flemming Ornskov by a quarter.
Ornskov could get a bonus of more than 10 times his basic salary and his total pay package was more than US$21mln last year, Hermes said.
He has overseen the mega-merger this year of Shire with US blood disorder specialist Baxalta and is rumoured to be considering other smaller deals to boost Shire’s line-up of new drugs.
But Dr Hans-Christoph Hirt, co-head of Hermes Equity Ownership Services (EOS), said: “We believe an incremental approach to salary rises is more appropriate.”
The fund manager is urging investors to vote against a plan by oil and gas services supplier Weir Group to award restricted shares not tied to performance targets.
Hirt said: “To focus on creating long-term value, we believe the company should have performance targets and apply the test of common sense if these prove to be unrealistic due to unanticipated market conditions. “
He also advised shareholders to oppose proposals by Tullow Oil to give its executives bonuses equal to 38% of the potential maximum and almost two times basic salary. Chief executive Aidan Heavey's salary in 2015 was US$850,000 (c.£583,500).
Hirt said the plan was “out of step with the decline in Tullow’s share price of approximately 80% over the last three years.”
“We feel there is a good case here for downward discretion to have been applied by the remuneration committee to the mechanistic outcome of the remuneration policy.”
Hermes also said it was opposing the appointment by fund manager Schroders PLC (LON:SDR) of its chief executive, Michael Dobson, as chairman.
“Although we recognise some of the key client, regulator and strategic partner relationships he holds, we do not believe these justify a breach of a fundamental principle of UK corporate governance and best practice that a CEO should not become chair of the company,” Hirt said.
At Schroders's annual meeting, shareholders staged a mini-rebellion, but still cast about 85% of votes in favour of re-electing Dobson.
Senior independent director Philip Howard said: "As I have explained previously, the board, before proposing Mr Dobson as chairman, consulted with its major shareholders and this engagement will continue."
A Tullow Oil spokesman declined to comment. Proactive Investors also contacted the other companies involved but none had replied at the time of going to press.
The move comes as Barclays faces a rebellion against its pay policy at its annual general meeting today.
Shareholder advisory group Pirc said the policy, under which the bank’s chief executive Jes Staley is paid a basic salary of £1.2mln plus other perks that could take his total package to £4.75mln or more, was “overly complicated and overly generous.”
On Wednesday, Barclays revealed that first quarter profits had sunk 25% to £793mln due to factors such as pressure on margins from competition in the mortgage market.
Luke Hildyard at the Pensions & Lifetime Savings Association, formerly known as the National Association of Pension Funds (NAPF), said: “There has been a strong message from the most engaged shareholders this year and in the last few years that executive pay has got out of control.
"We want to see more done to constrain executive pay more generally.”