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Lloyds Banking and BT Group among the big names on the Investment Association's naughty step

Last updated: 14:04 29 Aug 2018 BST, First published: 12:44 29 Aug 2018 BST

Fat cat
It is getting a bit crowded on the IA's naughty step

The shareholders are revolting and this year they are revolting more than ever, particularly over the trough-snuffling by FTSE 100 fat cats.

Among the big names put on the naughty step by the Investment Association, the trade body that represents the UK’s asset management industry, are BT Group PLC (LON:BT.A), Lloyds Banking Group PLC (LON:LLOY), Royal Mail PLC (LON:RMG) and WPP PLC (LON:WPP).

Heavily indebted BT saw 34% of the votes cast in opposition to its remuneration report while another formerly state-owned company with a huge hole in its pensions pot, Royal Mail, saw an astonishing 70% of the votes cast against acceptance of the directors’ remuneration report.

Set against that level of umbrage, the 21% of the votes cast in opposition to the Lloyds remuneration report seems like a mild rebuke, while the shareholders accounting for the 27% of votes cast in opposition to WPP’s pay package probably did so more out of habit than any expectation of being listened to.

Voting against a pay package is all very well but the votes are non-binding, which means the board can ignore the shareholders if they wish.

READ: Royal Mail shareholders vote against pay package for new boss Rico Back

When investor advisory firms ISS and Glass Lewis orchestrated a revolt against the board’s pay packets, which included a package for new chief executive Rico Back that was £100,000 higher than his predecessor’s annual package of £540,000, the head of the group’s remuneration committee, Orna Ni-Chionna, said the committee was disappointed at the result.

"The incoming CEO's pension entitlement is lower and the salary is higher than the retiring CEO. We did not feel it was appropriate to reduce the fixed pay for this very demanding role," Ni-Chionna. Neither did they think it appropriate for a person earning £640,000 a year to pay for his own pension as thousands of people on one-tenth of that amount do.

Sometimes, however, an executive perceived as dismissive of the views of shareholders gets his comeuppance, although in the case or Sir Martin Sorrell, the founder and former chief executive of WPP, the end came as a result of alleged misconduct, rather than his legendarily generous pay package.

READ: WPP issues upbeat AGM statement as 27% of its investors fail to back pay report over Sorrell options

Sorrell was allowed to leave the company with share awards worth millions of pounds intact and without a non-compete clause. Some 27% of shareholders opposed the WPP pay report at this year’s annual general meeting (AGM), while 15.5% voted against the re-election of the ad giant’s chairman, Roberto Quarta.

In general, however, FTSE 100 companies were out of step with the wider trend among UK companies, with executive pay not quite the hot button issue it had been the year before.

Among FTSE All-Share companies, executive pay declined overall as an issue, with the total number of remuneration resolutions dropped to 61 in the year to the end of July 2018 from 68 a year earlier.

 

Nevertheless, a report issued by the Investment Association on Wednesday showed that the number of companies experiencing “significant shareholder dissent” has risen.

The Investment Association defines “significant shareholder dissent” as any resolution put forward by the board where 20% of the votes or more were cast in opposition.

Among FTSE All-Share companies, 120 companies attracted the ire of shareholders, up from 110 the year before; 29 of those were repeat offenders.

In total, 237 individual resolutions got up the noses of a significant number of shareholders in 2018, up 25% from 2017’s total.

Opposition to individual director re-election was also a key theme this year, the Investment Association noted.

The number of total resolutions opposed to the re-election of directors more than doubled to 80 in 2018 from 38 in 2017. Companies in the FTSE 250 seemed to be going out of the way to raise the ire of shareholders, as rebellions over director appointments more than doubled (106%) with 37 resolutions in 2018 compared to just 18 in 2017.

“Shareholders have shown their teeth this year over FTSE 250 director re-election. They are using their votes to hold individual directors to account for decisions they made on issues such as executive pay and board diversity, as well as concerns that individual directors do not have the bandwidth to fulfil their roles as they spread themselves too thinly on too many boards,” said Chris Cummings, the chief executive of the Investment Association.

“While executive pay declined overall as an issue, there was a deeply disappointing jump in the number of FTSE 100 companies that saw pay rebellions in 2018. Shareholders clearly remain unimpressed with the approach to pay last year, and are frustrated the message is not getting through to some boardrooms. FTSE 100 companies must do more to ensure the pay packets of their top team align with company performance and remain at levels that shareholders find acceptable,” Cummings said.

 

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