Exec remuneration remains major concern for pension schemes

Executive remuneration remains a major concern for pension scheme shareholders as the number of remuneration-related resolutions that received significant levels of dissent (55) during the 2019 AGM season remained high, a Pensions and Lifetime Savings Association (PLSA) report has found.

In its AGM Review, which analyses AGM voting behaviour from previous years, the PLSA reported that 55 resolutions for remuneration-related dissent at FTSE 350 AGMs had been submitted – the same number as 2018 – across 43 different companies.

It follows an increase over recent years in remuneration-related dissent and remains at a five-year high.

The report noted that the average pay for FTSE 100 chief executives has increased from around 40 or 50 times that of the average UK worker in the mid-1990s* to a staggering 117 times the average worker today.

There is evidence, however, that FTSE 100 firms are beginning to take note of dissent levels amid growing investor frustration at the lack of progress. For the financial year ending 2018, the median FTSE 100 chief executive pay was GBP3.46 million; a fall of 13 per cent from the previous year’s figure of GBP3.93 million. This has been accompanied by a number of companies deciding to “head off” investor dissent by proactively reducing bonuses, executive pension entitlements or overall salary in advance of the 2020 AGM season.

The analysis forms part of the PLSA’s AGM Voting Review that has been published ahead of the updated PLSA Voting Guidelines for the 2020 AGM season, due out in the next few weeks. The guidelines set out voting best practice for pension funds or their asset managers to use and support positive progress on the issues highlighted in the report.

The report also found that with the Government’s introduction of new climate change disclosure regulations last year, there is an enhanced focus from pension scheme investors on ensuring ESG and climate change issues form a key consideration in their investment and stewardship strategies.

In 2019, several resolutions were put forward by shareholders relating to climate matters and given the growth in policymaker and public scrutiny, the PLSA believes this could increase. The PLSA has recommended that pension schemes seek to work with their managers and advisers to judge the impact of climate risk on their portfolios. Our 2020 Voting Guidelines will include further practical tips and details to help them do so.

Caroline Escott, Policy Lead: Investment & Stewardship, PLSA, says: “The PLSA has long argued that pension funds should use their votes to encourage companies to behave responsibly on issues like executive pay, or to consider the implications for their business models and strategies of climate change.

“As long-term investors, pension funds are ideally placed to encourage companies to behave in a way that ensures sustainable business success. We would also urge scheme investors to use the 2020 AGM season to hold Directors individually accountable on issues of continued concern – doing so can be a powerful tool to effect change. For instance, in cases where schemes feel that the agreed executive pay packages are not aligned to long-term performance, we recommend that pension fund investors vote against the re-election of remuneration committee chairs responsible for pay practices alongside voting against the remuneration policy or report.

“However, it is important to remember that voting is only one way for schemes to engage and make their views known on issues of concern. We would encourage pension schemes to consider how to best make use of the full array of engagement tools, including seeking additional meetings with company management, or collective engagement with other investors.”