Shareholder Spring Dismissed as a Myth

(November 20, 2012) – The wave of dissent against company remuneration packages in the early part of this year may have been no more than a blip and failed to ignite a push towards corporate governance among investors in the United Kingdom a study has revealed.

Non-profit organisation FairPensions found that the rumblings that some classed as an uprising against poor corporate governance in the spring of 2012 was greatly overstated. The organisation surveyed some of the largest asset managers and institutional investors in the UK and said its findings were “disappointing”.

“It now seems clear that isolated rebellions did not translate into higher levels of dissent across the board. Analysis by PIRC of a sample of 300 AGM results for FTSE All-Share companies in the first two quarters of 2012 shows that the average vote against remuneration reports was 7.64%, compared to 6.4% in 2011,” the FairPensions report said. “The notion that 2012 saw a significant and widespread jump in shareholder dissent on pay does appear to be a myth.”

A series of CEOs stepped down after remuneration packages shareholders felt were excessive were voted down. Drugs giant AstraZeneca and newspaper group Trinity Mirror lost their leaders, while others were forced to give up large pay and bonus arrangements.

However, the report said there was no pattern in votes against remuneration packages in the early part of the year – it even suggested there could be a correlation between how well a company’s share price was doing and the likelihood of a vote against relatively generous remuneration packages.

“Whilst remuneration reports clearly need to be considered on a company-by-company basis, the waving through of reports with components widely considered as bad practice needs to be explained,” the report said.

Nor was there consistency from asset managers, who are usually responsible for filing the votes on behalf of their investor clients, the report said. These fund managers showed wide variability between what they would vote for and against, and as a community, there appeared to be little agreement on what constituted poor governance practices.

“There also appears to be significant variability in willingness to challenge management, with some large UK asset managers appearing reluctant to vote against remuneration reports even at companies which suffered large revolts,” the report said.

This week shareholders in mining giants Glencore and Xstrata voted in favour of a merger between the two companies, but did not agree to a “golden handcuffs” remuneration package. The director responsible for the proposal resigned soon after the result of the vote was announced.

Conversely, the largest owner of listed shares in the world, the Norway Pension Fund-Global announced this week that it was going to be a more active in lobbying for better corporate governance on behalf of smaller investors.

For the full FairPensions report click here.