Investors turn ire on firms whose executives are set to cash in

Firms that drew heavily on furlough money now face anger from shareholders over boardroom largesse

Last modified on Sat 26 Jun 2021 11.12 EDT

Some of Britain’s best- paid company bosses are behaving as if the pandemic never happened. Bonuses secured in 2019, and paused last year as firms sought government support, are returning in 2021. But there are signs of a hardening of the shareholder stance on high executive pay. Companies from Cineworld to Morrisons have faced investor ire over their remuneration policies this year.

Latest in the firing line is JD Sports, which paid executive chairman Peter Cowgill almost £6m in bonuses in the 12 months to February 2020. Major shareholder groups are preparing to vote against the pay deal at Thursday’s annual general meeting – the company’s refusal to refund £86m of government furlough cash being a particular irritant.

Investors and campaigners are battle-hardened after fights with AstraZeneca, online clothing retailer Boohoo and estate agencies Foxtons and Savills.

Foxtons paid its chief executive a £1m bonus despite taking £7m from the government to support staff on furlough. In April 44% of its shareholders voted against the pay deal. AstraZeneca boss Pascal Soriot saw a 40% vote against a deal that could hand him pay and perks of nearly £18m for 2021.

Under corporate governance rules a shareholder vote on executive pay – such as the one Cowgill faces this week – is advisory. Only a vote on the overall pay policy, which must be held at least every three years, is binding.

Catalist Partners, an activist investor that holds a 2% stake in Foxtons, said in April: “Today’s vote must serve as a wake-up call for the board.” Glass Lewis, one of the world’s most influential investor advisory services, has recommended that shareholders vote against what it called an “inappropriate pay policy” at JD Sports.

Both Foxtons and AstraZeneca ignored the shareholders; JD Sports is expected to press ahead with Cowgill’s reward should he also face a similar negative vote.

Luke Hildyard, director of the High Pay Centre thinktank, says shareholder activism generates headlines, but has achieved little in practice. “There is a risk of overstating the extent of shareholder opposition to indulgent top pay awards. Only three pay awards have actually been voted down so far in 2021, and these are only advisory votes, so the chief executives will still be getting the money.”

At supermarket chain Morrisons only 30% of the vote went in favour of its boardroom pay earlier this month. Chief executive David Potts and his two most senior managers will receive £9m in pay and bonuses, after the remuneration committee used its “discretion” and adjusted its calculations to ignore Covid-19 costs of £290m.

In April, more than 60% of shareholders in Informa, the world’s biggest events group, voted against the pay packages of chief executive Stephen Carter and chief financial officer Gareth Wright.

In May Rio Tinto’s shareholders voted by 61% against the miner’s remuneration policy, which handed £7.2m to disgraced former chief executive Jean-Sébastien Jacques for last year, a 20% rise on his total pay the year before. Jacques stepped down after the destruction of sacred 46,000-year-old rock shelters in Western Australia. The non-binding vote was ignored by the board.

Much of the pay debate centres on the makeup of remuneration committees, which are a mix of non-executive directors and consultants, often from the major accountancy firms.

Some argue that pay for senior executives needs to be attractive in a competitive world, and that awards are as much about sending a signal to prospective candidates as they are a reward for current bosses. But chief executives know they have a short shelf life – about six and a half years for male bosses, just over three for women – and push for higher rewards as compensation.

Remuneration committees must also choose which businesses to use as a benchmark. If private equity firms are introduced into the equation, the sky is almost the limit. One of the private equity firms that owns a slice of Morrisons, for instance, has a very generous pay regime. Silchester International Investors operates from offices in London’s Mayfair. Its partners shared a £110m payout last year, according to its latest accounts. Silchester owns 15% of Morrisons and is expected to back a buyout of the supermarket at the right price.

Labour and the TUC want to inject a degree of realism into pay awards by giving workers a place on remuneration committees. But investor groups insist they are having an impact, despite the high-profile cases where votes are ignored. Legal & General Asset Management is one of the UK’s largest investors and owns a slice of most large companies. It says 447 companies asked it for advice last year on corporate governance, including pay.

Senior manager Angeli Benham said: “We believe UK companies have done the right thing in taking account of the wider stakeholder experience when determining executive pay. While the impact of the pandemic continues to affect companies and stakeholders, we would like companies to continue to show restraint.”

Benham is campaigning for companies to pay the living wage and offer minimum hours, as it is in shareholders’ long-term interests that staff are not on the breadline. This chimes with the UN-backed Principles for Responsible Investment, which state that income inequality can “negatively impact institutional investors’ portfolios”, as well as damaging output, reducing growth and contributing to “populism and protectionism”.

The Investment Association, which represents UK investment managers, sets executive pay guidelines and has made clear its opposition to bonuses when a business has shed staff or used government rescue funds. Andrew Ninian, its director of corporate governance, said: “Companies need to be mindful of the impact of the pandemic on their business and stakeholders, and treat executives as they do their wider workforce, perhaps now more than ever.”

Hildyard of the High Pay Centre says the determination of some groups is undermined by the many who do little to curb executive pay: “We found that while 37% of FTSE 100 companies cut executive pay during the shutdown, only 13% cut the bonuses and long-term incentives that are the biggest component of executive pay awards.

“Awards are made by serving or former business leaders who themselves have benefited from excessive top pay. Remuneration committees and wealthy investors are insufficiently sceptical of the need to lavish millions on company directors, or of the exaggerated importance of individual chief executives or difficulties finding replacements.

“The process would greatly benefit from the presence of elected workers’ representatives on boards and remuneration committees – people who understand the company best, and could bring a bit of real-world perspective to deliberations.”

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