Talk of rebellion over executive 
compensation reached a crescendo in the UK on Thursday after Weir Group plc failed to obtain approval for their three-year binding policy, and FTSE 100 issuers Shire plc and CRH plc received bloody noses over their pay proposals. With recent protests over pay at BP, Smith & Nephew and Anglo American still fresh on the mind, these vote results are further proof that executive pay remains a hot button issue.
Weir Group, the FTSE 250 engineering company, became the latest high profile casualty of what is turning into a rough AGM season for issuers. When the dust had settled, 72% of voting shareholders rejected the Company’s forward-looking policy.
The exceptionally high level of opposition reflects an exceptionally unusual policy relative to UK standards, in that it would have allowed for the granting of non-performance based restricted share awards (“RSAs”) to all executives. This practice is common in other markets but has long been considered unacceptable by investors in the UK, where equity awards are normally subject to performance conditions.
In this case the board cited the difficulty of setting meaningful targets in light of the Company’s distressed financials and outlook, and noted that it already grants RSAs to U.S.-based executives. Investors were not convinced and, as a result, the Company will continue to operate under the previously approved remuneration policy, and will likely have to make significant changes before coming back to shareholders at the 2017 AGM, if not sooner.
Earlier in the day, Shire, the FTSE 100 pharmaceutical, managed to pass its annual advisory vote by the skin of its teeth, with a bare majority of 50.5% of voting shareholders approving the remuneration report. The crux of the issue at Shire was the committee’s decision, made without prior consultation with shareholders, to award the CEO, Dr. Flemming Ornskov, a salary increase of 25 per cent.
While both pay and shareholder support have traditionally been high at the Company, investors appear to have viewed the latest increase in Dr. Ornskov’s pay as a step too far. Their concerns may reflect the committee’s approach; the increase was awarded in July, a mere two months after shareholders had approved a new ‘forward-looking’ pay policy at the Company’s 2015 AGM, but not communicated to shareholders until January 2016. Moreover, Shire’s share price growth has stalled on fears that the benefits of its US$32 billion acquisition of haemophilia-specialist Baxalta in January may be undermined by rival haemophilia treatments and changes to the U.S. tax code.
Similarly to Weir, shareholders at CRH rebelled against the Company’s forward-looking remuneration policy, with more than 40% of participating investors voting against that proposal. These results are particularly notable given that shareholders have previously appeared to give boards a bit more leeway on remuneration policies, while focusing their ire on the implementation of the policy.
CRH has grown significantly in the past few years through strong financial performance and a range of costly acquisitions, and is now comfortably one of the 50 biggest companies listed on the London Stock Exchange. Despite this growth, which saw over 90% of voting investors back the Company’s advisory remuneration report, a sizeable minority of shareholders were clearly uncomfortable with the jump in potential pay under the revised policy, including the raising of bonus opportunity from 150% to 225% and a lift in long-term incentive potential from 250% to 365% of base salary. UK companies are required to obtain shareholder approval of a binding policy at least every three years; however, as an Irish-incorporated entity, CRH’s policy was voluntarily put to shareholders on a non-binding basis.
It should be noted that Thursday was not all doom and gloom for UK issuers, with murmurings of discontent at Barclays plc and Tullow Oil plc failing to materialise into anything more than relatively minor votes against remuneration reports at those companies. Nonetheless, remuneration committee chairs attending meetings over the next month would be forgiven for beginning to feel the warmth of spring turn to a chill.