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On 30 April 2021, Pearson plc’s shareholders, made their voices heard for the second year running, by expressing discontent at the company’s annual general meeting.
While last year this related to the re-appointment of non-executive director, Michael Lynton, over concerns that he was overboarded with other commitments, this year shareholders expressed discontent in two areas. Pearson’s 2021 AGM saw a failed resolution in relation to holding general meetings on 14 clear days notice. Alongside this, shareholders representing 37.25% of Pearson’s share capital expressed their discontent towards the annual remuneration report.
The contention regarding the remuneration package comes following the appointment of new CEO, Andy Bird, who took on the role in the role in October 2020, following the resignation of John Fallon.
The remuneration report highlighted Bird’s ‘rare track record as a proven leader of a large, complex and diverse business, and a wealth of experience driving digital change in a disrupted consumer content business, while creating shareholder value.’ The report went on to highlight how this experience was in line with Pearson’s strategy to become ‘a digital-first consumer-focused lifelong learning company’. Resultantly, the remuneration committee highlighted the necessity of offering a competitive remuneration package, which resulted in the creation of a ‘one-off bespoke’ package which aimed to maintain the existing shareholder approved remuneration policy while bridging the compensation gap between the UK and the US – Bird’s home market. This resulted in the co-investment award, which was enabled by Bird’s decision to ‘invest personally and substantially in Pearson shares’. All other elements of Bird’s remuneration package were stated to be in line with the approved remuneration policy which is in line with UK market practice and governance principles.
The package represents an increase on John Fallon’s remuneration, and the committee acknowledged that the co-investment award structure was unusual in the UK. Under the arrangement, Bird is required to purchase Pearson shares at a cost of 300% of his base salary, which the committee stated demonstrated his commitment to the role and aligned him immediately with shareholders. In return, Bird was granted a co-investment award equal to 750% of his base salary (worth £7.4m).
Prior to the AGM, shareholder advisory groups, including Institutional Shareholder Services (ISS) and Glass Lewis advised shareholders to vote the pay package down. ISS stated the co-investment award was ‘significant in value’ and that a compelling rationale had not been provided for it. Furthermore, ISS stated that shareholders were provided with an ‘all-or-nothing’ decision regarding Bird’s appointment, with a decision between ‘approving a suboptimal remuneration package in order to secure the CEO position, or further instability with no CEO in place’.
Commenting on the contention at the AGM, the board stated:
‘The Board appreciates the support shown by the majority of shareholders for most of the resolutions at today's AGM. We note the opposition to the motion to authorise holding general meetings on 14 clear days' notice, as well as the significant minority vote against Pearson's remuneration report.
Pearson has engaged extensively with shareholders in recent months and there is strong ongoing support for Andy Bird's appointment as Chief Executive and confidence in his new strategy to return Pearson to growth’.
Notably, since Bird’s arrival, Pearson has reported strong trading results in its Q1 trading update on 26 April 2021 with 5% revenue growth and global online learning up 25% resulting from strong growth in virtual schools due to enrolment growth in the current school year at Pearson’s partner schools. This compares to multiple profit warnings over the years under John Fallon, as the company had struggled to make the digital switch. Revenue for 2020 fell 12% due to cancellations of exams in lockdown.
Remuneration has been a highly controversial topic in recent years, and the onset of the pandemic has only increased scrutiny in this area. So far, much like in 2020 (see our 2020 voting results trend report), resolutions involving remuneration have accounted for the majority of significant no votes in 2021, with over 56% of companies facing significant no votes relating to remuneration.
Alongside Pearson, several companies have experienced significant no votes against remuneration since last week alone. This includes Glencore plc, who received a red top warning over its package (see: shareholder advisory groups take a dig at Glencore’s remuneration package), London Stock Exchange plc, British American Tobacco plc, Meggitt plc, Plus500 plc, and, most recently Clarkson plc, whose AGM was held on 5 May 2021.
Comments from the boards on these significant no votes include:
‘We carried out an extensive consultation with our largest shareholders (representing 65% of the register) and gained considerable positive feedback and support during the consultation. Amendments were made to the Policy proposal during this process to reflect shareholder feedback. The Board believes the final Policy put forward to be in the best interest of all stakeholders, and that it will help address many of the challenges presented to the aerospace sector by the events of the last 12 months.
We acknowledge that there were a significant number of votes cast against the Policy. The Board recognises that developing a new remuneration approach that meets the needs of all shareholders is difficult, but continues to firmly believe that adopting a hybrid share plan structure which incorporates both performance and restricted share awards, is the right approach for the Company in the current circumstances. The hybrid share plan maintains alignment of our executive directors with our senior leadership and our shareholders, whilst providing a strong mechanism to retain and motivate the broader senior management team in the wake of the significant uncertainty in our markets created by COVID-19.’
- Megitt plc, 2021 AGM
‘The increase to the CEO's base salary reflects the increased responsibilities and scope of the role following the acquisition of Refinitiv, which has transformed the business into a significantly larger, more complex and truly global company. LSEG undertook extensive engagement with shareholders on our Remuneration Report and taking into account their feedback, the LSEG Remuneration Committee also determined to significantly increase the minimum shareholding requirement for the CEO from 300% to 400%. Although shareholders were broadly supportive of the underlying principle of the CEO's increase in base salary post completion of the Refinitiv transaction we recognise that certain shareholders would have preferred the increase to have been phased.’
- London Stock Exchange Group plc, 2021 AGM
‘Over the last year, we have engaged with shareholders about executive remuneration. The engagement has been open and constructive and the Remuneration Committee has given careful consideration to shareholder feedback, which helped to shape the Committee's decisions and resulted in changes being adopted to proposals on executive remuneration for 2021. Our executive remuneration arrangements are fully aligned with our Directors' Remuneration Policy which was approved by a signiﬁcant majority of our shareholders at our2019 AGM.’
- British American Tobacco, 2021 AGM
The continuous contention in this area highlights the difficulty companies are facing in balancing shareholder interests while offering competitive pay packages to executives.
Market Tracker will continue to monitor these trends as they develop.
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