Investors plan tough action to tackle excessive pay

Several of the world’s most powerful shareholders are planning to take even tougher action on excessive bonuses for company bosses in 2017 after investor protests over executive pay reached a five-year high last year.

Large investors including Fidelity International, Aberdeen Asset Management, Calpers, Standard Life and Henderson Global Investors have told the Financial Times that they are planning to crank up pressure on boards to reduce excessive pay and introduce greater transparency in 2017.

Other big investors that have vowed to clamp down on payouts include Hermes Investment, the UK asset manager; USS Investment Management, the £50bn pension scheme; and the Church of England’s investment arm.

The new wave of investor protests will add to the friction between company management and big shareholders, which came to a head last year as increased awareness of rising wealth inequality in the US and Europe put executive pay in the spotlight.

According to figures compiled for the FT by Manifest, the research group, between 10 and 20 per cent of shareholders refused to support pay proposals at 62 S&P 500 companies and at 18 FTSE 100 companies last year — the highest level of shareholder dissent on executive pay in at least five years.

Full scale rebellions where more than 50 per cent of shareholders refused to back pay proposals broke out at seven of America’s largest companies and three major British companies. This is the highest count for shareholder revolts since 2012.

BP, WPP, Reckitt Benckiser, Anglo American and Oracle were among the big companies to incur shareholders’ wrath, and investors warn that there will be further disputes to come.

WPP, Sports Direct, Liberty Media and BP are among the companies highlighted by corporate governance experts as most likely to face a shareholder backlash over their remuneration plans this year.

Shareholder unrest is already having an effect. Last week, British cigarette maker Imperial Brands withdrew plans to raise its chief executive’s pay from £5.5m to as high as £8.5m in the face of shareholder opposition.

Dominic Rossi, chief investment officer at Fidelity International, which has one of the most aggressive voting records on pay, said: “I have no doubt the asset management community is increasingly of the view that it needs to put growing pressure on companies over this matter. We see that as a responsibility.”

The fund manager, which oversees $284bn of assets, will start voting against remuneration committee chairmen this year if a company’s pay plans are deemed unacceptable over two consecutive years.

Calpers, the largest US public pension fund, and Henderson, the FTSE 250 asset manager, have increased their focus on “quantum” — the total amount paid to senior executives — in their assessment of appropriate pay levels this year.

Aberdeen Asset Management, Europe’s third largest listed fund manager, is adopting a tougher stance on salary increases, and plans to apply a strict focus on pay levels in the US.

Meanwhile, Scottish investment company Standard Life has drawn up “harsher” voting guidelines on executive compensation, according to Euan Stirling, the company’s head of stewardship. “You would have to have your head buried in the sand not to get a sense of the environment on executive remuneration,” he said.

Sacha Sadan, head of corporate governance at Legal & General Investment Management, said: “More scrutiny will arise both for companies and investors in the 2017 AGM season. This is due to a combination of social, political and financial pressure on companies.”