Jeff Salway: Pension savers urged to join backlash

As big names vote against pay hikes for directors, small investors can do their part says Jeff Salway

BP chief executive Bob Dudley saw his boards plans to give him a 20% pay hike despite a profit slump thrown out by investors. Picture: Getty Images/New York Times

Institutional investors are voting against executive pay awards in a backlash reminiscent of the so-called “shareholder spring” of 2012 – but ordinary investors and pension savers continue to have little say on the matter.

A growing number of big investors are rebelling against firms rewarding poor performance with big pay packets, in a movement that has seen several FTSE 100 firms lose votes on bonus plans during the current AGM season.

Glasgow-based Weir Group was forced to review its pay plans for directors after more than 72 per cent of shareholders voted against its remuneration policy last month. It was the biggest rejection since rule changes took effect in 2014 giving shareholders a binding vote on board remuneration policy. Investors also voted down BP’s plans to give chief executive Bob Dudley a 20 per cent pay increase even after the oil giant posted record losses, while Anglo-American suffered a similar backlash.

Such revolts are still relatively rare, however, despite widespread public anger at excessive pay. That’s partly because the biggest shareholders are usually institutional investors such as pension funds and life insurers.

“If you feel aggrieved it’s likely institutional shareholders are also feeling aggrieved and in the current low growth environment they are now raising their voices more and more,” noted David Thomson, chief investment officer at VWM Wealth in Glasgow.

But while those funds are ultimately investing money on behalf of millions of pension and Isa investors, few people are aware of their right to have a say, and even fewer again exercise that right.

“This year’s top executive pay packets are beyond the wildest dreams of most ordinary people – even though ultimately it is shares held in their pensions that pay for them,” said Catherine Howarth, chief executive of Share Action, a charity that promotes responsible investment. “If you save in a private pension, you should have the right to know how your fund votes on your behalf on executive pay and other issues. Pension funds that vote in support of the exceptionally high pay packets we’ve seen this year should be able to justify that decision to their members.”

So how can you make sure you voice is heard? One way is to find out whether the funds in which you invest actively gather members’ views on issues such as high pay.

“If they don’t, ask why not,” Howarth suggested. “We urge readers to get in touch with people managing your pension savings, and ask about their voting record on executive pay.”

Identifying the fund groups that are active when it comes to issues such as excessive pay is far easier than it used to be.

“The big investment firms such as Standard Life Investments (SLI) have whole departments focusing on corporate governance, so you can consider putting you money with groups that are in a position to influence executive pay,” said Thomson.

Details of their activity and positions on certain issues are usually available on their websites. For example, the SLI page (www.standardlifeinvestments.com/governance_and_stewardship/index.html) includes a link to its voting record, where it lists all votes and provides a brief explanation for them. Groups including Henderson, Aviva Investors, Threadneedle and Royal London Asset Management also tend to be more active than most when it comes to voting against management recommendations.

Most big tracker funds now have corporate governance teams as they are often among the largest shareholders, Thomson added. “So you can seek out such firms and invest with them and collectively you along with many thousands of other smaller shareholders will have an impact,” he said.

“You might even see it as a potentially successful investment strategy and invest alongside a large activist shareholder who sees an opportunity to shake up entrenched management and who may get improvements passed that will benefit all shareholders.”

The trend towards disclosure of voting records extends to pension funds, according to the Pensions and Lifetime Savings Association (PLSA).

“Pension funds are keen to contain the type of wildly excessive pay packages that we’ve seen lately,” said Luke Hildyard, of the PLSA.

In its most recent stewardship survey of pension funds, 98 per cent agreed they have stewardship responsibilities, while 93 per cent said environmental, social and governance factors were material to their investment decisions.

It also found that most pension funds now publish their “Statement of Investment Principles” – including responsible investment policies and executive pay – and willingly disclose their voting record to members.

“That means pension savers can often find this information online or by contacting their fund. Most funds welcome interest in where they are invested and how these investments are looked after, but very rarely receive feedback from members,” said Hildyard. “However, this is more likely down to a lack of knowledge of how the investment process works than a lack of concern over issues like executive pay.”