Investors sharpen their knives ahead of the meeting season

 
Adam Hignett
As Britain’s biggest companies prepare to meet their shareholders, should directors be nervous? Adam Hignett reports.

IN 2012, WPP’s Sir Martin Sorrell found himself classed as the most high-profile victim of the so-called shareholder spring, despite his remuneration being a “modest” £6.8m.

Since then though, it has ballooned to £36m. In terms of performance, Sorrell has certainly delivered a solid investor return over the past five years, a key metric used to determine his remuneration.

But will investors balk at this record figure, and the other record remunerations expected this year? Paul Emerton, Old Mutual’s head of UK stewardship and governance and a leading voice in the debate, has his doubts.

“We are not in the same situation economically as we were in recent years, so there may not be the same reactions as before,” he told City A.M., adding shareholders were still likely to remain “sensitive” to the sheer size of pay awards.

Remuneration is just one issue among many facing investors this meeting season. While the feel-good factor of economic recovery may insulate chief executives from some discontent, other areas are rearing their head.

“We’ve had one or two interesting developments in terms of salary policy and what happens when they need to find a new chief executive,” Manifest’s Paul Hewitt said. “Succession plans will be given a lot of attention.”

Hewitt highlighted the row which engulfed BG Group last December over the appointment of Helge Lund – and his £25m pay deal – as an example of poor succession planning and remuneration conflicting.

Will Pomroy, of the National Association of Pension Funds (NAPF), agreed remuneration will not weigh as much on shareholders’ minds this year – even if the pay is heavier.

“It will be an interesting season when it comes to what votes actually mean this year,” he said, adding shareholders may still chose remuneration votes as a proxy broader dissent.

Room for shareholder manoeuvre on remuneration votes may be restricted, however, with Emerton believing shareholders may have tied their hands with three-year plans. “This will take away some of their momentum,” he said.

But this may not be the whole picture. Pomroy said companies could regret being bound by the plans leaving shareholders room to push back if they need tweaking.

“There will be a degree of revisionism this year, it’s an evolving beast. The expectations have moved on and are evolving,” he said.

He added there might be other avenues to express discontent, such as voting on executives and those who sit on the remuneration committees.

Equally problematic for companies, and a point of contention for shareholders is the ongoing issue surrounding the use of 12-month service contracts. A recent example of this issue raising its head involved Peter Sands of Standard Chartered, whose 12- month contract ensured he left the bank with a hefty payout.

Despite these other considerations, the overall figures still are certain to grab the attention of certain shareholders.

“There will always be companies which grab headlines for reason of quantum,” Hewitt said, who added WPP often had noticeable discontent from shareholders.

But will there be a repeat of 2012 for Sorrell? The NAPF does not expect it: “WPP has clearly performed well and benefited our shareholders,” said Pomroy, adding; “Our concern is what happens after he is gone.

“Unfortunately it is not an individual but a company we invest in.”