04 May 2022

AGM season – open season on pay?

AGM season is getting into full swing. After two years of postponed, virtual or hybrid meetings, shareholders are on manoeuvres.


In a (hopefully) post-pandemic environment with an economy facing the biggest drop in living standards since the 1950s as wages fail to keep pace with inflation, there’s one issue dominating debate: pay.

And there’s nothing that brings it into sharper relief than annual reports and AGMs. With swathes of the population grappling with soaring energy bills and rising retail prices, executive remuneration is a hot button.

With an ever-growing focus on ESG, all corners of the investment community are becoming more outspoken on this issue; institutions, activists, and campaign groups are all gaining confidence in taking a firmer stance.

All of this means the media are looking at remuneration with renewed interest.

Remuneration tables in annual reports have always been an easy target for journalists. Even before the pandemic changed the environment, little effort was required to scroll to the remco report (journalists rarely read anything else in an annual report*) and produce a “CEO paid £XXm in salary and bonuses” story.

It’s an even easier sell to an editor when the company in question has suffered a fall in revenue or profit (ideally both). Throw in a share price collapse and you have the Holy triumvirate. I know, I spent years doing just this for national newspapers.

Even before Covid-19, exec pay was getting harder to justify in an ESG-cognisant world, complete with demands for ratios showing the multiple of a shopfloor salary to the CEO’s. Institutional investors were also becoming more active, calling out what they saw as egregious pay or bonus packages.

But after two years of Government bail-outs, rates relief, furlough money and other taxpayer-funded support for businesses, the spotlight on C-suite remuneration is harsher than before.

Here are some key points worth considering as AGM season really gets going:

 Are you in the cross hairs?

Journalists will be looking for companies with a history of investor revolts over pay. If your business has faced trouble before, then expect them to be watching closely.

Other actions likely to score hits on a hack’s radar are management or board changes, investor activism, windfalls (think energy companies), soaring profits or surging share prices which could be linked to long-term incentive plans (LTIPs), inflating total pay.

Covid crisis

Government support for businesses during the pandemic will also attract attention. Companies seen to have done well through the pandemic will also be in focus; those which might not have attracted such attention before could now find themselves under scrutiny for handing out bonuses to bosses while having not paid back government support.

“Acme Widgets took £1m in taxpayer cash it is yet to hand back but awards boss £1m bonus” is an easy headline to write and could leave the affected business in a very uncomfortable position.

Crystallisation maze 

Journalists often get confused by LTIPs. Many grapple with – or maybe choose to ignore – the concept of an LTIP paying out in a single year, not realising or overlooking it is a reward for several years’ performance. Payouts from such schemes mean they often relate to results pre-dating the unique conditions created by the pandemic.

Do not be surprised if a story fails to make this distinction, meaning that comparison of total remuneration packages for consecutive years can – unfairly – flag huge increases. It’s a point that can be argued with journalists but it’s not a battle that is easily won.

Proxy problems

Journalists generally like proxy advisers such as Glass Lewis and Institutional Shareholder Services (ISS). This is because they can often get hold of their reports explaining whether votes – it’s mainly remuneration ones the media focus on – should be supported or not, explaining their reasoning with a helpful round-up of competitors’ actions. This analysis often generates a quote.

Other groups the journalists frequently tap up for reports include the Investment Association (beware its “red top” rating”) and PIRC. The former is less chatty with the press, the latter often seen as lightweight or too reactionary.

If your company hasn’t got the backing of Glass Lewis or ISS, be on alert. Keep a watching brief if the Investment Association isn’t on side.

 Irksome institutions

Some fund managers may find their individual perspective is trumped by a ‘house view’ or blanket policy, not least on government support. Be conscious of these policies and particularly those investors with a track record of speaking out publicly.

 It’s probably too late

By now most remcos will have met and decided how much will be handed out, and probably written reports explaining it. For companies yet to write the committee’s report on pay awards, tone is critical.

You will need to have explanations for hefty pay awards or bonuses that will stand up to the most robust examination, almost certainly at an intensity not seen before. This is because the media will be trying to point out the gulf between the majority of their readers who are seeing their living standards eroded, juxtaposing it with highly paid chief executives, some of whom receive sums many cannot fathom.

 Forewarned is forearmed

So how can companies insulate themselves from unwanted attention? Here are a few recommendations:

  • Ensure you remain aware of the views of the shareholder advisory firms
  • Stay close to your larger institutional shareholders and take note of their concerns
  • Flag any potentially thorny issues to your advisory teams well in advance
  • If remuneration is looking out of kilter (due to LTIPs etc) make sure the drafting reflects the situation clearly
  • Be prepared for the hard questions
  • Ensure that the right tone runs through all your communications

*Though journalists usually do a Ctrl+F search for “SFO” and “Serious Fraud Office”. I’ve heard tales of annual reports with special characters inserted between the letters or words to beat this search function. Clever if it works, but disastrous if discovered.

If you would like to speak to MHP about strategic communications advice around this and a range of other boardroom topics, then please don’t hesitate to get in touch.

Alan Tovey spent 20 years as a business journalist on national newspapers, most recently the Daily Telegraph and Sunday Telegraph, before joining MHP’s Capital Markets team in November.

Simon Hockridge is a Managing Director in MHP’s Capital Markets team, with over 15 years of experience in strategic financial communications for listed businesses.

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