Price tag on remuneration reports cause for shareholder opposition

Price tag on remuneration reports cause for shareholder opposition

Shareholder discontentment on remuneration seems to be a common theme as the annual general Meeting (AGM) season continues with the AGMs at Tesco plc, Petropavlovsk plc and Boohoo Group plc unveiling further shareholder opposition.

Tesco faced a failed resolution with 67.29% against the remuneration report on 26 June 2020. However, as this was an advisory vote, the result made no difference to departing chief executive Dave Lewis’s pay package of £6.42m last year.

Following Tesco’s AGM result, the store recognised that a ‘significant number of shareholders had concerns with the principle of the Committee’s adjustment to the TSR [total shareholder return] comparator group.’ As per the annual report, the ‘TSR was assessed against a benchmark index made up of FTSE 350 Food and Drug Retailers (excluding Tesco) and FTSE 350 General Retailers.’ According to the annual report, ‘As Ocado has seen a significant shift away from being a retail-focused business towards a technology-focused business during the performance period, the [Remuneration] Committee decided to remove Ocado from the TSR benchmark from 16 May 2018.’ As a result, Tesco had moved from underperforming by 4.2% for the past three years to outperforming its comparator group by 3.3%. This has meant that Ocado’s sharp increase in share price was not measured against Tesco’s, which otherwise, would have left Lewis with a missed £1.6m worth of free shares and therefore, would have compromised his £6.42m payout package.

Institutional Shareholder Services Inc. (ISS) and Glass Lewis & Co. both advised investors to vote against the report, with the ISS stating that ‘…it is considered a matter of poor practice to revise the terms of the Long Term Incentive Plan after the performance conditions are set, except in truly exceptional circumstances.' This isn’t the first time that the ISS has spoken out about poor practice in the retail industry, having advised Morrison’s shareholders to vote against their remuneration policy only two weeks prior. See: Shareholder opposition as pension Pott stands 1 % away from a ‘red top’. 

On the subject of failed resolutions, gold mining company Petropavlovsk plc’s AGM result (held 30 June 2020) revealed nine failed resolutions this week, including opposition to remuneration policy, re-election of directors and authorisation of directors to allot shares. The remuneration policy was revised and put to a vote at this year’s AGM and the FTSE 250 company stated in their annual report that the remuneration committee ‘Ensures that the Company maintains contact with shareholders regarding the Company’s remuneration policy’. Nonetheless, the policy received 57.68% of votes against it. Petropavlovsk stated in their result that ‘The Remuneration Committee is disappointed to note that despite a consultation process, during which major shareholders confirmed their support for the new Remuneration Policy (the 'Revised Policy'), certain of these shareholders voted against the Revised Policy’, however, the board will ‘endeavour to discuss the next steps with all of its key shareholders ahead of the calling for a General Meeting to constitute a Board which is not only aligned with the wishes of all of its stakeholders, but will also provide the highest levels of corporate governance…’

Meanwhile, AIM company Boohoo’s shareholders saw a 30.08% significant no vote against the remuneration report at this year’s AGM (held 19 June 2020), the second consecutive year the remuneration report has received shareholder opposition. AIM has seen similar issues with Boohoo’s threshold on bonuses. The maximum bonus opportunity continues to be up to 100% of salary for executive directors, up to 150% for chief executive, John Lyttle and up to 200% for co-founders, Mahmud Kamani and Carol Kane, which will be paid out in full if market capitalisation hits £7.55bn. This doesn’t seem like such an unlikely prospect in light of the fact that share prices have risen by 160% since the middle of March and the company has recently acquired high street fashion brands Oasis and Warehouse. In addition, given that Boohoo has always been an online, fast fashion sensation, the brand hasn’t felt the full effects of lockdown in comparison to other retailers who faced store closures.

As the largest AIM company by market capitalisation, Boohoo’s annual report states that it follows the Quoted Companies Alliance (QCA) code and takes into account the UK Corporate Governance Code 2018. The QCA has a lighter touch to remuneration, which means that Boohoo is not formally obliged to consult its shareholders on remuneration matters. Despite this, Boohoo pledged in their annual report that ‘The Remuneration Committee will consider shareholder feedback received in relation to the remuneration policy and the remuneration report at the AGM each year.’ Two significant no votes later and the response to remuneration report remains the same.

Boohoo’s actions in response to this outcome are yet to be seen, while Tesco commented in its results that ‘Following the AGM, the Remuneration Committee will continue to engage with shareholders to fully understand their concerns and will consider the full range of feedback as we prepare to put our Remuneration Policy to shareholders at the 2021 AGM in accordance with the requirements of the Companies Act. We will publish an update on our engagement, in accordance with the UK Corporate Governance Code, within six months of the 2020 AGM.’

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