More than a fifth of FTSE 350 companies faced significant shareholder dissent in the 2019 AGM season – with executive pay and directors’ elections topping the list of investor discord.

The shocking
findings, from data gathered by the Minerva Analytics and the Pensions and
Lifetime Savings Association, should make for uncomfortable reading for many UK
directors.

The annual AGM Voting Review used data from Minerva Analytics to analyse the results of the 2019 voting season. It found 81 (23%) of the FTSE 350 companies attracted dissent levels of over 20% on at least one resolution at their AGM last year.

Investors
voted against 148 AGM resolutions during the period. While this is level with
the figure in 2018, it is significantly higher than the 2014 to 2017 period
when the number of resolutions drawing investor dissent ranged from 86 to 128.

Executive remuneration remains one of the most controversial issues. Some 55 resolutions saw some kind of shareholder rebellion in 2019– up from 38 in 2016, although only one resolution was defeated last year.

“In
general, the proportion of resolutions defeated is very low,” the PLSA report stated.
“However, it would be a mistake to treat this as an endorsement of existing
practices – it could be that some shareholders fail to recognise the concerns
of some of their own clients.” 

In 2019,
a PLSA survey revealed a mammoth 74% of pension schemes believed executive pay
levels for UK listed companies were too high and 81% said they were “very or
fairly concerned” by the extent of the pay gap between company executives and
the wider workforce. 

Widespread
evidence

According to figures from the High Pay Centre and Chartered Institute for Personnel Development, the average pay for a FTSE 100 CEO has increased from around 40 or 50 times the average UK worker in the mid-1990s to roughly 117 times today. 

UK banks
Barclays and Standard Chartered attracted significant criticism over the pay
awards for their CEOs, receiving shareholder dissents of 31.82% and 37.74%
respectively on their remuneration reports. Both CEOs now face cuts to their
pension contributions to bring them down to the same level as other bank staff.

Some companies
continue to experience repeated dissent on remuneration resolutions over recent
years, according to the survey. In total, 18 companies in the UK FTSE All Share
received repeated dissents over their executive pay resolutions in 2019, with shipping
broker Clarkson, software firm Playtech, energy company Premier Oil and security
tech giant Sophos Group among the 10 companies encountering significant dissent
for their remuneration reports for three years in a row.

“There
are a range of reasons for this repeated dissent from shareholders, as
companies continue to fail to address concerns over salary increases in light
of falling share prices, executive pay, and, in the case of Premier Oil,
worries over high executive pay awards following a major refinancing in 2017,”
the survey noted.

Frustrating lack of
diversity

Alongside
remuneration, the election and re-election of directors were also a big
sticking point for shareholders, with 58 of these resolutions attracting
significant dissent in the FTSE 350, up from 54 the previous year and considerably
higher than the 25 in 2016. 

In particular, last
year’s AGM season saw shareholders become increasingly vocal over the diversity
of boards. Following frustrations about its all-male board, only 63% of
Hansteen Holdings’ shareholders approved the re-election of the chair as a
non-executive.

Numerous other
companies who do not currently meet the Hampton-Alexander target of 33% of
women on their board have experienced shareholder opposition over the
appointment of one or more of their male directors, including 888 Holdings,
Hilton Food Group and Hill & Smith Holdings.

While climate
and environmental-resolutions were tabled less frequently compared to other
investor concerns, these issues still proved to be a bone of contention - with more
investors prepared to challenge companies over their ESG policies.

New regulations
introduced by the government last year now require pension schemes to disclose
their approach to engagement with investee companies how they take account of
financially material factors, including ESG and climate change considerations.

Climate issues
topical

Last year,
a number of major climate-related resolutions were put forward by shareholders.

The first
saw 97.72% of BP shareholders vote in favour of a resolution tabled by Climate
Action 100+ which will require the company to set out a business strategy
consistent with the goals of the Paris Agreement.

Meanwhile,
shareholders at mining company BHP pushed forward a resolution which would
require the company to suspend its membership of trade associations not
lobbying in line with the Paris Agreement, winning a significant 22% of the
vote at its AGM in October.

Commenting
on the report’s findings, the PSLA, which represents over 1,300 pension schemes
with 20 million members and £1 trillion in assets, said: “Increasing investor
activity on issues from climate change to executive remuneration has seen
companies take positive steps to improve practices, whether it be aligning
their business strategies to the Paris Agreement, reducing the pensions of
their CEOs or increasing disclosure on their employment models.

“How
investors choose to act in the 2020 AGM season could have a significant impact
on both company behaviour and perceptions of the industry. We would therefore
encourage schemes to act on any issues of concern,” the association stressed.