Proxy backlash: City anger at firms trying to limit exec payouts
So-called proxy advisers are facing mounting anger in the City after urging shareholders to reject the paypackets of executives at two FTSE 100 firms.
Glass Lewis, which advises shareholders on on corporate policies, has advised investors in the London Stock Exchange’s parent company, LSEG, and fund manager Abrdn, to reject proposed paypackets for executives at the two firms in recent weeks.
The calls come amid a thorny debate raging in London over the salaries made by bosses and the ability of listed firms to attract top talent. Some in the City argue that they face an uphill battle recruiting executives due to the hefty salaries made in the US, which dwarf those paid to UK executives.
Glass Lewis’s recommendations have now triggered fresh anger from City figures who claim the advisory firm is hampering the London’s ability to recruit.
“International London-listed companies compete for talent globally and need to be able to offer proper compensation to do so,” Mark Austin, a lawyer at Latham & Watkins and central figure in the reform of UK capital markets, told City A.M.
“We need a level playing field on remuneration and recommendations such as these from some of the proxy agencies are not doing that,”
Proxy advisers in the US “often wave through far bigger payouts” and the approach in the UK is “out of step with the reality of how our largest listed firms hire executives”, he added.
Emily Watts, Corporate Finance Director at Cavendish, added that proxies were also adding to the handicap faced by public companies in recruiting talent against their private peers, where executive pay does not need to be disclosed.
“Proxy advisors have the ability to dictate rules of conduct that – while not legally binding – effectively constrain company behaviour based on arbitrary benchmarks,” she told City A.M.
“It’s a debate over how much risk directors are willing to take and how well rewarded they should be for doing so.”
The pay of top bosses has been climbing in recent years despite pushback from some proxy groups. FTSE 100 chiefs made an average of £4.4m in 2022, up 16 per cent on the previous year, according to the thinktank, the High Pay Centre.
Bosses at S&P 500 US companies meanwhile are paid an average of $16.7m (£13.1m), three times the UK, according to the US trade unions federation AFL-CIO, reported by the Guardian
The debate over London’s executive pay was triggered last year when the boss of the London Stock Exchange, Julia Hoggett, took aim at proxy firms for voting against London remuneration while waving through bigger salaries in the US.
Recruiting top staff was “hampered by the advice and analysis of the proxy agencies and some asset managers voting against executive pay policies even when those pay levels are significantly below global benchmarks,” she wrote in a blog last May.
City firms are also preparing to head into ‘AGM season’ where shareholders in scores of London firms will have their say on corporate policies. Both Abrdn and LSEG are among the FTSE 100 firms to be facing investors this month.
The move by Glass Lewis to recommend against the payout for Abrdn’s finance chief last week triggered pushback from the London-listed fund manager. Jason Windsor, who joined the firm in October last year, started on a salary in line with his previous roles at housebuilder Persimmon and that of his predecessor.
However, Glass Lewis said shareholders reject the proposal.
“In this instance, we believe abrdn plc failed to sufficiently rationalise the salary,” a Glass Lewis spokesperson told CityAM “This is not to suggest that an incoming executive must be appointed at a discount to their predecessor. Glass Lewis has recommended that shareholders support many such cases in the UK where a company has provided compelling rationale.”
The firm added that it acknowledges that “salaries need to be competitive to attract the right talent” but believes that “investors can reasonably expect a company to clearly explain why it has done so.”