“Nothing personal, old chap”: investors may only take aim at pay policies, not individuals, but it still hurts reputationally

The company secretary of a mid-sized quoted company was not a happy bunny.

Just days before its recent annual general meeting (AGM), he’d received news that a sizeable number of shareholders were planning to vote against the company’s remuneration policy.

A frantic round of last minute phone calls ensued.

In the end his rearguard communications action limited the scale of the shareholder revolt but it was still rather embarrassing to have to subsequently issue a mea culpa to investors promising next time to engage earlier and more directly with them.

He was not the only one to have been caught on the hop.

According to an analysis by Deloitte, more than twice as many FTSE 100 companies succumbed to a shareholder pay revolt this year than last, as investors attacked managements seen to be profiting during a tough time for many during the pandemic.

So-called low votes — of less than 80 per cent of shareholders — in favour of annual remuneration reports have risen to 12 per cent in 2021 so far, from 5 per cent in 2020, according to the analysis.

Companies that have suffered significant pay revolts in recent months include household names such as Morrisons, JD Sports, Rio Tinto, Aston Martin, Savills and Cineworld.

At Foxtons, where the chairman quit after nearly 40% of investors voted against the estate agent’s remuneration report, the board ruefully noted that a “significant proportion of shareholders did not agree with the decision to pay bonuses to executives… on the basis that the company had benefited from government support” in the form of furlough payments and business rates relief.  It promised to review future bonus packages.

It could be argued that this year’s AGM season was a one-off. Investors were always going to focus on fairness, especially when boardroom pay packages were considered against the wider societal impact of the pandemic.

In the event, more than half of chief executives took a salary freeze during the year as companies sought to rein in costs, according to the Deloitte data. This suggests most boards are at least reading the reputational runes better, and acting accordingly.

But it is a curiously British trait that where longstanding concerns about pay and governance issues persist, shareholders continue to protest against policies rather than individual directors. In this sense, shareholder protests shouldn’t be taken personally, old chap.

Nevertheless, the reputational risk remains.  Boards need to take both individual and collective responsibility. As noted in a previous blog this is why the role of independent non-executives (NEDs) really matters. They’re the ones who play a pivotal role in acting as a sounding board for executives, guiding them through the hard choices the pandemic poses.

As for boardroom pay, the lesson from this year’s AGM season is clear.

Boards need to actively engage in dialogue with shareholders early, directly and, if necessary, repeatedly – if only to avoid having to pull reputational rabbits out of the hat at the eleventh hour.