McFarlane told those attending the annual general meeting in Aberdeen that a reconstituted remuneration committee chaired by Imelda Walsh will take a “deep” look at the issue.
The decision comes after weeks of opposition from shareholders and pay advisory bodies. Some 25 per cent of shareholder votes yesterday were cast against the remuneration report, although this was fewer than the 30 per cent last year.
McFarlane, addressing his first AGM as chairman, stressed that the terms of O’Toole’s contract had been set at the time of his appointment, when the company had been keen to secure his services in the face of competing offers from other companies.
But he believed the package O’Toole was paid last year was fair for the progress made at the bus and train operator and pointed out it included awards that had vested during the year as well as rewards for the latest period. “We are honouring decisions made in the past,” said McFarlane. But he added: “My view is that what Tim did in the last 12 months was worthy of what he received.”
O’Toole’s total package was £1.98m, including the vesting of a “retention award” of £324,000 granted in 2011 and a bonus of about £600,000. His basic pay has been frozen at £846,000 a year for the past three years and he declined a bonus in the past two years.
Responding to a number of questions from shareholders about executive pay, McFarlane stressed the company was a large and complex business with ambitions to return to the FTSE 100 and that its remuneration policies needed to reflect that.
But he believed executive pay worldwide and the gap between employee and senior management pay had escalated to levels that “probably need to be thoroughly reviewed”.
Representatives from a number of unions, including the International Transport Workers’ Federation, had raised questions about employee pay and conditions in parts of the business during the meeting.
Earlier this month, O’Toole intervened directly for the first time in the company’s dispute with rebel shareholder Tom Sandell, saying his criticism of the firm’s performance and pay policy did not stand up to scrutiny. He said it was for others to decide on his pay and there were “a lot of things to be proud of” about the group’s performance.
Sandell, whose company owns 3.1 per cent of FirstGroup, said O’Toole was paid more than other transport chiefs while shareholder returns from the Aberdeen-based firm have fallen 8 per cent in the past five years.
Sandell, which did not appear to be represented at yesterday’s meeting, has called for the company to sell its US assets and has raised concerns in his letter about a lack of sector expertise on the group’s board.
In a statement, FirstGroup said shareholders had “overwhelmingly backed the composition and structure of the board and our plans to take the business forward. Across the group, we are confident that we have the right programmes under way to build on our market-leading positions and improve performance to create sustainable value.
“Imelda Walsh, the newly appointed chair of our remuneration committee, will engage with investors to seek their views and ensure ongoing support for the group’s remuneration policy and practices.”
Last week, FirstGroup insisted that its turnaround strategy was “on track” as it reported rising revenues in the UK.
However, the group said first-half operating profits at its First Student yellow school bus division in the US will be lower than a year ago, due to the later arrival of Easter.