Thursday, 7 June 2012

Having two shareholder votes on pay

The BIS proposals on executive pay include the introduction of a new, binding shareholder vote on remuneration policy, alongside the existing avisory vote on the remuneration report. One argument made against such a proposal is that in practice shareholders would vote the same way on both resolutions, so there's no point. But is that true?

Helpfully there's a test case. Amec Plc has an unusual approach to shareholder oversight of executive pay, in that it gives investors (at least) two votes a year - one on the remuneration report, and one on remuneration policy. It's been doing this for at least ten years.

Looking at AGM results for this year and last year, we can see that there's was a bigger vote against the remuneration report than the remuneration policy. In 2010 both votes against were very low, but there was still clearly a difference, especially if you look at abstentions. But look at the 2009 AGM - Amec received a 46% vote against the remuneration report, but only just under 10% against the remuneration policy. So on the face of it investors have used the two votes differently. 

The other thing we can check this against is asset managers' voting disclosures. Looking at UK managers (at least those who have, or had, 2009 data available) and how they voted at Amec's 2009 AGM the picture is a bit odd. Here's a list of voting decisions I could find. First letter represents the vote on the remuneration report, the second the vote on the policy. F=For, A=Abstain, O=Oppose.

Aberdeen - FF
Aviva - OO
Baillie Gifford - FF
F&C - FF
Fidelity - FF
Hermes - FF
L&G - OO
M&G - FF
Royal London - OO

So in a small sample (don't blame me, blame the nature of the voting disclosure regime) we see both little differentiation in voting behaviour and mainly support for the remuneration report. Maybe other, non-disclosing, asset managers were taking a differentiated approach. Particularly overseas ones? 

The other point worth making is that people might differentiate by deciding to make any point they wish to through their vote on the remuneration report, simply vote in favour of the policy resolution. So the different voting outcomes may not necessarily indicate both votes being utilised.

And actually different voting outcomes on pay resolutions shouldn't be a surprise given that investors will often vote differently on a proposed incentive scheme to the way they vote on the remuneration report, see Kofax for example (resolutions 2 and 13).

But the broad point is that we can't assume that shareholders will vote the same way on these resolutions. It's another example of anecdotal 'common sense' in the corp gov world that may not be supported by evidence.

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