Eyes off the prize?

June 26, 2013

It’s starting to look like investors in Britain’s top companies have reverted to type.

Reuters ran the numbers on voting at FTSE 100 annual general meetings (AGM) last week and you would be forgiven for thinking the ‘shareholder spring’ had never happened. The average vote against executive pay deals at the 71 top companies which have so far held their AGM was down 18 percent from the result for the full FTSE 100 in 2011. The raw number has to be viewed with caution; investors claim victory in forcing companies to engage, cut absolute pay and tweak bonus arrangements, even though there is little direct evidence so far of pay moderation in absolute terms.

The protest vote fell or stayed put at 58 percent of companies and there was little other evidence of acrimony when you look beyond pay votes. If we exclude a clutch of votes over the rather arcane issue of notice periods for general meetings, then more than two thirds of companies suffered no protest vote of 10 percent or more on any other AGM resolution.

Of course, there have been exceptions. Easyjet stands out as the focus of investor ire, drawing more than double the protest vote of the next company and after suffering similar last year. But the revolt here has been very much driven by the objections of founder and now largest shareholder Stelios Haji-Ioannou. Glencore too, the second most robust protest, had its own very particular narrative driving the voting this year.

There are others who have seen the protest steadily increase over the last two years. Anglo American saw the vote against its remuneration report rise from 3.25 percent in 2010, to 5.3 in 2011, 13.2 in 2012 and finally to 21 percent this year. That kind of pressure, steadily ratcheting up as more investors join in, may well signal a time for some changes in the way the mining group pays its bosses.

It’s also interesting to look at whether share price performance can help insulate company directors from objections to their wage packet. The graphic below measures the 12 month share price performance of the FTSE 100 against the change in the protest vote on pay. The companies that stand out here include Reed Elsevier which saw a ‘no’ vote  of 15 percent on its remuneration report, a threefold increase from 2012, after outperforming its FTSE All Share peer group by 17 percentage points. At the other end of the scale the directors at Meggit charmed a huge fall in the protest vote despite sharply underperforming.

There will be stories around each individual case, and the aggregate numbers may be more telling. Out of the 33 companies which saw a protest vote of 5 percent or more, almost two thirds had underperformed their peer group in the preceding 12 months. Flip it around and the result is pretty much the same; of the 23 companies which saw a ‘no’ vote of less than 3 percent on pay, two thirds outperformed.

Not quite a magic bullet, then, but a useful arrow in the quiver. We’ve looked before at inconsistencies in how investors target their objections, and these numbers are a useful reminder that some shareholders are less inclined to raise hell when their own pockets are being lined too.

Editing by Ben Townsend

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