Shareholder Discontent Over Executive Remuneration Builds in Europe, Report Finds

Posted on Sep 27, 2012 in Gene Marbach At Large | 0 comments

By Gene Marbach

According to GMI Ratings, the size and frequency of substantial protest votes against remuneration in Europe, particularly in the U.K., have risen to a level never seen before, and only exceeded by shareholder activism in the U.S . In a recently-released report, GMI Ratings, an independent provider of research and ratings on environmental, social, governance and accounting-related risks affecting the performance of public companies noted that, in a movement that has been dubbed a “shareholder spring,” corporations have experienced more pay protest than at any time in the past. Many of the region’s largest corporations have received a significant amount of votes against remuneration plans with many others failing to win a majority of shareholder support. In addition, a number of initiatives in Europe indicate that executive pay remains at the top of the regulatory, legislative and shareholder agenda.

According to GMI Ratings, twenty-four companies in Europe had received a significant “against” vote on executive pay so far this annual general meeting season as of July 17 2012, with many votes still to be processed and some meetings still to take place. This compares to 25 significant “against” votes for the whole of 2011. A significant vote against remuneration is defined as less than 75 percent support. Even before the news broke on the LIBOR scandal, CEOs had been forced to resign over pay and performance problems at companies including AstraZeneca, Trinity Mirror and Aviva.

Legislation and renewed regulation has swiftly followed these protests, GMI Ratings notes. Pending legislation in the U.K. indicates that, by 2013, pay plans will have to pass by a majority vote or shareholders will have the binding authority to reject management’s remuneration proposal outright. New disclosure rules are also being contemplated to make shareholder decision-making easier. And in France, the new Socialist government is considering the imposition of pay limits on executives at companies in which it owns a majority stake. Pay will be capped at 20 times that of the lowest paid worker in the company and will lead to substantial pay cuts for CEOs, whose earnings are already far lower than typical CEO pay levels in the US. Pressure will also be exerted by the administration on other companies in which the government owns shares, but not a controlling share.

The main findings of the GMI Ratings report include:

24 companies inWestern Europe received a significant vote against their pay plans as of the date of the initial data analysis, July 20;
the average “against” vote in this group was 40% and the median was 34%;
some companies are dealing with protest votes for two years running, such as easyJet plc and WPP, while one company, UBS, has seen pay unrest for at least three years;
although some votes are against pay plans and/or increases in general, some are against specific payments such as:
- top-up bonus at Smiths Group
- retention bonuses at Xstrata
- sign-on payments at UBS
some votes have led to CEOs resigning, as at Aviva;
at some companies the exit packages paid to CEOs were the focus of protest votes, as at AstraZeneca and Trinity Mirror.