Pension funds urge firms to engage with shareholders over executive pay

The National Association of Pension Funds (NAPF) has urged eight companies to talk to their shareholders and resolve disputes over executive’s pay.

In its second Annual General Meeting (AGM) Season Report, NAPF names eight listed companies – including easyJet, transport operator FirstGroup and private equity company SVG Capital – that have received successive years of dissent over the high wages offered to their directors.

These companies – defined as those that received more than 20% dissent in 2013 and more than 15% dissent in 2014 – must open a dialogue with shareholders ahead of next year’s AGM season, NAPF said.

“To receive significant shareholder dissent on remuneration one year might be regarded as a misfortune, but to do so a second year really does not reflect well,” said Will Pomroy, corporate governance policy lead at NAPF. 

New regulations introduced this year require companies to put their remuneration reports – which detail how much employees have been paid – and remuneration policies – which reveal how much directors will be paid over the next three years – to a vote. 

While the former vote is only advisory, allowing shareholders to express dissatisfaction, the latter vote gives shareholders the power to veto a company’s plans.

Pomroy said that companies must use these votes as an opportunity to justify their directors’ wages to shareholders. 

“The intention behind the new reporting requirements is to explain this ‘why’ and encourage fruitful dialogue between companies and their shareholders about what delivers sustainable performance,” he said.

“We look forward to seeing more companies reflect on how better to link pay arrangements to both their specific corporate circumstances and the interests of their long-term owners.” 

Anger over executives’ wages and bonuses has increased across society as the pay gap has widened in recent years. 

One recent report revealed that the chiefs of Britain’s 100 biggest listed companies were paid around 143 times more than average workers in the same firms last year.

Beyond the 8 companies named by NAPF, many shareholders have used their position to hold firms to account over pay packages they deem to be excessive. 

The Royal Bank of Scotland, ITV, Ocado, BG Group and WPP are amongst those that faced shareholder revolts against their pay packages this year.

Further reading:

FTSE 100 CEOs’ pay 143 times higher than employees’ in 2013

RBS to give £3.5m in shares to top executives

Executive pay 180 times average – as wealth gap increase

Chief executives see 6% increase in remuneration package

Shell forced to answer tough questions on environment, ethics and governance at AGM