One of the City’s biggest investors has put top company bosses on notice that excessive pay rises will be not be tolerated.
Standard Life Investments – which is also putting Sports Direct under renewed investor pressure over its failure to address executive pay and governance – has signalled it is prepared to vote against pay rises for chief executives unless there is a convincing reason for them.
With Imperial Brands having to abandon a resolution before its annual general meeting on Wednesday that would have led to a multimillion-pound a pay rise for its chief executive, Alison Cooper, major City investors appear ready to block huge renumeration deals during this year’s AGM season.
Euan Stirling, head of stewardship at the Edinburgh-based fund manager, said: “The remuneration committee will have to be very persuasive, that all other things being equal, the chief executive should be paid more.”
The government is consulting on reforms to executive pay and Theresa May also put boardroom pay on the agenda during her campaign to become prime minister. BlackRock, the world’s biggest fund manager, has also seized the issue. Last month it wrote to the 350 biggest companies on the stock market to urge them to rein in excessive boardroom pay.
Standard Life Investments published its stewardship update for 2016 in which it said it would continue to press for change on a number of issues at Sports Direct, including the excessive influence and dominance of founder Mike Ashley.
“We have been concerned for some time about governance arrangements at Sports Direct,” the annual governance report said. “The board lacks independence and the non-executive directors lack the appropriate skills and experience to enable robust challenge of the executive team, particularly the founder and major shareholder Mike Ashley.
“We also have major concerns regarding its remuneration policy. We have engaged with senior executives and non-executives over many years on these issues, but to little effect. We will monitor future developments and expect to engage further over the coming year.”
Standard Life Investments (SLI) welcomed Ashley’s appointment as chief executive last September, saying it was a role that better reflected his influence as majority shareholder and founder than his former “ill-defined” position of executive deputy chairman.
The fund management arm of insure Standard Life, which looks after £270bn of investments for savers and pensioners, welcomed Sports Direct’s decision to allow an independent party to review governance but said it had concerns “about their ability to deliver”.
The report highlighted Sports Direct’s treatment of its workers, which has been widely criticised after a Guardian investigation.
Volkswagen was also singled out by the asset manager as an “escalation candidate”, suggesting SLI will put more pressure on the German car manufacturer to change its ways after the emissions scandal that rocked the VW group in 2015.
“We continue to believe that increased board independence is crucial to rebuilding trust at Volkswagen and will continue to engage on this basis,” SLI said.
Stirling said investors had loudly voiced their anger about excessive boardroom pay deals last year when shareholder revolts shook some of Britain’s biggest companies, including BP and the medical equipment group Smith & Nephew.
Stirling said: “The original shareholder spring of 2012 was replayed in 2016, with widespread dissent in shareholder ranks against excessive pay for management. We place particular emphasis on corporate culture and the impact of excessive remuneration and the responsibility of shareholders to hold boards to account.
“The serious implications of failure in these areas suggest that further remedies are likely to be sought.”
Standard Life had voted against the £70m pay deal for Sir Martin Sorrell, chief executive of advertising group WPP, and “escalated our action by voting against the members of the compensation committee”, the fund manager said in its report. It abstained on pay at BP and against the pay deals at Shire pharmaceuticals, which also faced a shareholder revolt last year.
