UPDATE: Well sprung?

May 29, 2012

(This May 25 post has been updated to reflect AGMs which took place on Friday and to include graphics)

We’ve just witnessed a stirring spectacle of shareholder empowerment during the British AGM season. Haven’t we?

Well…. I’ve pulled together some numbers on remuneration resolutions from the 63 FTSE100 AGMs we’ve seen so far this year which shows that the average protest vote against pay did indeed go up from 2011 to 2012….

…by 0.2%.

Not quite the man-the-barricades spirit evoked by talk of a ‘Shareholder Spring’.

The average vote against executives’ pay deals was 8.2% compared to 8.0% last year for the companies that now make up the FTSE100.

That raw number doesn’t tell the whole story, of course. The British shareholder base is not particularly diverse and it smacks of a strategic call by big investment houses to pick their battles carefully.

After all, one picture of a rueful Andrew Moss on the front page of the Telegraph might have a more telling effect on boardroom greed than a modest uptick in protest votes across the board. And in the wake of shareholder-spring headlines, it was notable that Tesco boss Philip Clarke passed up an annual bonus of about 372,000 pounds, maybe heading off a potential outcry over UK sales at the supermarket group.

It’s also worth noting, that 42 of the 63 companies analysed (67%) did see an increase in the protest vote compared to a year earlier, which when you take into account the modest increase in the average protest vote implies boardrooms which suffered major revolts at 2011 AGMs made concessions which served to placate shareholders, or arguments which served to convince.

One useful example of that comes from Rio Tinto. The Anglo-Australian miner saw a little over 5% of its investors vote against its pay deal in 2012, but that came after a 25% ‘no’ vote in 2011 and 37% in 2010. So how did the company manage that? One major shareholder told me the Board had taken the hint, naming former Barclays chief John Varley to chair the remuneration committee. Crucially, he announced his arrival with some soothing words which told investors their concerns would be addressed.

Another wrinkle occurs when you look for a link between protest votes and share price performance. Surely investors are still motivated by their pockets, and are only moved to punish executives who fail to deliver on the bottom line? I tried to make a fumbling point on this a while back, and the data is not clear cut.



You can go to the interactive graphic by clicking here.

Of the companies whose 2012 AGM pay resolutions saw above-average votes against… stay with me here… there was only a slight majority (54%) which had seen underperformance of their share price relative to the sector over 12 months. When you look at the companies with a below-average ‘no’ vote, the result was mirrored, with 54% showing outperformance over the period. You can find a more convincing result if you look at companies where the protest vote fell from last year’s AGM; in those cases 74% of the sample show share price outperformance over the 12 months. But I don’t think it’s enough to show a clear link.

There are some interesting outliers in the above graphic. Aviva and Rio we’ve discussed, but Man Group deserves a mention too for escaping investor censure after a painful year.

It’s tough to work out whether the difficulty in proving a link between protest and stock performance speaks well of shareholders’ long-term thinking, or simply indicates that they are more minded to rail against the odd egregious bonus scheme than strike a blow against a generic idea of ‘fat-cat’ pay. Perhaps it is a symptom of the skewed idea of ownership which the FT’s Simon Caulkin discussed earlier this month.

One thing that is clear from the UK AGM season so far, is that only Aviva’s vote would have forced a remuneration committee back to the drawing board if the EU’s tentative moves towards a binding vote on a simple majority bear fruit. Cases like Rio Tinto show how sustained pressure from investor protest votes can sometimes, slowly, effect concessions from companies, but that tiny 0.2% increase this year lays bare the huge rump (forgive the image) of inertia among short-term or passive shareholders which makes substantial protests nigh-on impossible.

Looking at the raw numbers you do see a clear case for lowering the bar on any move to binding pay votes. It is a tricky balancing act, and it runs the risk of scaring off the timid or emboldening the rabid, but forcing companies to revisit their pay deals when the protest hit 25% would empower active and interested investors. It needn’t be a painful; just five of the 63 AGMs this year would have breached the threshold, and as we’ve seen from the Rio case, shareholders often just want to know they’ve been listened to.

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