In the Fundamentals briefing, LGIM’s Director of Corporate Governance, Sacha Sadan, examined the shareholder spring – a series of AGM votes that forced companies to re-examine the link between company performance and CEO pay – and the wider issue of remuneration.
“The shareholder spring was perhaps the best example of how shareholders can help end contentious pay awards” Sacha stated.
At a time when austerity and restraint are being seen throughout the UK, large pay rises were seen as inappropriate when not linked to performance. Nearly 250 companies hold their AGMs between April and May, which provided the ideal outlet for this sentiment and the opportunity for momentum to build. The result was the shareholder spring.
“Behind the headlines however, there was already a growing number of companies willing to actively engage with their shareholders prior to AGMs” explained Sacha. “This meant that the actual number of ‘no’ votes reduced; in fact, a little over half of the companies we spoke to about remuneration altered their pay proposals before their AGM.”
The Stewardship Code of principles, implemented in 2010, encouraged and enabled large shareholders to act more effectively and collectively. In June, the Government announced new regulations on directors’ pay after consulting with major shareholders, including LGIM and companies, providing further strength to shareholders’ collaborative power.
“Being a responsible major shareholder means being active” argued Sacha. “In our view voting rights must be utilised, with abstentions used in exceptional circumstances only. An equally powerful tool for shareholders is the annual re-election of directors. If needed we can bring pressure to bear on individual directors, particularly those involved with remuneration committees.”
LGIM has seen many companies taking positive steps over the past year. An increasing number of companies are working with their shareholders to deliver pay packages, supported both internally and by shareholders that are linked to the business strategy.
“LGIM is supportive of paying management for performing well. We want companies to have the best management, and for those managers to benefit as shareholders benefit. We believe that engagement, transparency and alignment of interests will be better for everyone” concluded Sacha.