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Sep 06, 2021

Investors boost pay scrutiny at European companies

Contested votes on remuneration issues rise 18 percent year on year, finds Georgeson

Investors tightened the screw on European companies over executive pay this proxy season, with a rise in the number of contested votes covering remuneration issues, according to a new report by Georgeson.

The number of pay-related resolutions experiencing significant opposition – defined as 10 percent or more votes against – rose by 18 percent year on year, reveals the study, which covers AGMs in the UK, the Netherlands, Germany, Spain, France, Switzerland and Italy.

Spain witnessed the highest level of opposition to remuneration votes, says Georgeson. The country saw 61 percent of votes on the remuneration report and 58 percent of votes on the remuneration policy receive at least 10 percent opposition.

The UK, meanwhile, saw the lowest level of opposition to executive pay, notes the report, with investors contesting 25 percent of proposals on the remuneration policy and 18 percent of proposals on the remuneration report.

But UK companies still saw a significant uptick in pay scrutiny compared with 2020. The number of contested votes on the remuneration policy and remuneration report climbed year on year by 63 percent and 44 percent, respectively.

Companies also saw more opposition to director elections, adds Georgeson. The study finds a 37 percent increase in the number of contested elections related to director appointments between 2020 and 2021.

‘Remuneration remains a key focus area, with shareholders showing a greater inclination to oppose executive compensation resolutions as a result of the Shareholder Rights Directive II (SRD II) and the pandemic,’ says Domenic Brancati, CEO for UK/Europe at Georgeson, in a statement.

‘Similarly, we saw shareholders leveraging votes against directors to show their displeasure on particular issues such as climate change and other environmental concerns.’

This proxy season, companies were under pressure to explain any notable pay rises for management given the difficulties experienced by workforces during the pandemic. Investors also continued to make use of new votes handed to them under SRD II to display their opposition to pay packages and policies.

SRD II requires companies to offer a vote on the remuneration policy at least every four years and an annual vote on the backward-looking remuneration report. While some countries already had say-on-pay laws in place, many have had to bring in new votes for shareholders under the directive.

The Georgeson report also looks at the investor and proxy adviser reception given to say-on-climate votes. These resolutions, originally promoted by UK hedge fund The Children’s Investment Fund, call for companies to create a climate action transition plan and put it to an annual shareholder vote.

The report looks at 15 European companies that put forward say-on-climate votes, finding that the proposals received 97 percent support on average, with backing falling below 90 percent on only one occasion – at Royal Dutch Shell.

Proxy adviser ISS supported the votes at all 15 companies while rival Glass Lewis took a more cautious approach, abstaining on five votes and recommending against two more.

Earlier this year, Glass Lewis said it had concerns about say-on-climate votes, given investors may not have the expertise to judge action plans and the potential for legal issues. The proxy adviser said it will ‘codify’ its approach before next year’s proxy season.