British firms warned over new wave of pay revolts at AGMs

Britain’s biggest companies have been warned they face a wave of revolts in the forthcoming annual meeting season and risk a government clampdown on excessive remuneration unless they show restraint over executive pay.

The Investment Association – whose members manage £5.7tn of savings and investments – is ready to pounce on overly complex bonus deals and payouts that are not linked to performance. Writing for the Guardian, Chris Cummings, the IA chief executive, said: “As the starting gun is fired on this year’s AGM season, businesses around the UK would do well to heed the lessons from Brexit. Too many people still feel they are not sharing in this country’s prosperity. Companies can either act responsibly now and shape a more responsible 21st-century corporate Britain or they can carry on as before and have it foisted upon them.”

His warning comes amid signs that major investors are preparing for a lively AGM round. Royal London Asset Management, which manages £100bn of assets, intends to vote against any long-term bonus scheme which increases the potential maximum payout for company bosses.

Ashley Hamilton Claxton, corporate governance manager at Royal London, said she expected to vote against proposed increases to maximum bonuses and long-term incentive plans (Ltips) which usually involved awarding executives shares as a multiple of their salary.

“Our default position is to say no,” said Hamilton Claxton. “We’ve decided we need to draw a line under the maximum increase.” Bonus increases caused by executive promotions could be treated differently, she said. She also wants pay plans to be simplified.

Even before the AGM season gets into full swing, shareholders have forced Imperial Brands, maker of Gauloises and John Player cigarettes, to abandon a pay deal for chief executive Alison Cooper. That enhanced bonus scheme would have increased her maximum annual pay from £7.1m to £8.5m.

Travel company Thomas Cook has also cut the maximum bonus payout for its chief executive, Peter Fankhauser, under a new long-term bonus plan.

Cummings said investors would be on alert for three warning lights: significant increases in total remuneration for executives; complex pay deals; and weak links between pay and performance. He pointed to the latter as a key factor in AGM revolts last year when oil company BP and medical services provider Smith & Nephew both had pay deals voted down. Although these were advisory votes they proved bruising for the companies.

Theresa May put a clampdown on corporate excess on the agenda during her campaign to become prime minister last year and a green paper outlining possible reforms was published in the wake of her victory. The outcome of the consultation is not yet known but she faced criticism for backing down from an idea to install workers on boards.

Her intervention came after the coalition government gave investors a new binding vote on how a company intended to operate its pay policy for three years, in addition to the advisory vote on annual pay deals introduced by the Labour government 15 years ago.

Two-thirds of the FTSE 100 leading companies will have to put their pay policies to a binding vote this year. Cummings said the number of companies which had visited the IA to discuss executive pay ahead of the AGM season had more than doubled over the last six months.

“This is certainly a sign of the healthy appetite for dialogue between the boardroom and shareholders. It is also no doubt a sign of the pressure that many FTSE companies feel as a result of the PM’s spotlight,” said Cummings.

The world’s largest asset manager, BlackRock, earlier this year warned UK companies they must match boardroom pay rises with those of their workers. The Church of England, a major institutional investor, has written to the 350 biggest companies on the stock market, warning them it would vote to block excessive boardroom pay deals.

Big payout at Melrose

Directors at engineering turnaround specialist Melrose Industries are in line to receive shares worth more than £200m as part of a bonus scheme which is among the most generous in City history.

The incentive plan, which is linked to value created for shareholders since 2012, means four top executives, including chief executive Simon Peckham, can each expect shares worth around £35m.

This is because directors are entitled to shares worth 7.5% of any increase in the value of Melrose, over a five-year period that ends this May.

The company confirmed this would be worth about £206m to directors, based on Melrose’s recent share price and adjusted for cash that shareholders have invested and taken out of the company over the past five years.

Just four executives will get 68% of the total, according to the company’s annual report.

That means Peckham, executive chairman Christopher Miller, vice-chairman David Roper and finance director Geoffrey Martin are likely to split stock worth £140m between them.

The £35m each of them can expect dwarfs the £23.3m received by housebuilder Berkeley’s founder-chairman Tony Pidgley in 2015 but still some way below the £70m deal that Sir Martin Sorrell got in the same year at advertising giant WPP.

Directors can sell enough shares to cover the cost of tax on the awards but must retain at least 50% of the remaining shares for at least two years.

A source close to the company said none of the directors had ever sold any of their shares in Melrose, except to satisfy tax bills.

The company has also returned more than £3bn to investors, who approved the pay plan in 2012, by taking over struggling engineering firms, sprucing them up and selling them on. The final details will be known when the annual report is published next month.

• This article was amended on 20 March 2017 to correct Alison Cooper’s maximum annual pay from £5.5m to £7.1m.