Interactive Investor

Your vote counts: focus on AGMs at Rolls-Royce, Astra and BP

7th May 2021 16:46

Graeme Evans from interactive investor

Some of the UK’s biggest companies hold shareholder meetings soon. These are the possible flashpoints. 

New pay policies at Rolls-Royce (LSE:RR.) and AstraZeneca (LSE:AZN) will be subject of shareholder votes next week as more blue-chip companies seek to adapt remuneration to reflect Covid-19 conditions.

In the case of Rolls, chief executive Warren East is to get 30% of his salary in shares and focus on shorter-term bonus targets as he bids to get the engines giant back on its feet.

Astra wants to ensure it has the flexibility to recognise “exceptional performance” after a year in which CEO Pascal Soriot oversaw the delivery of a Covid-19 vaccine. However, the drugs giant's proposed changes haven't gone down well with some voting advisory groups.

Rolls and Astra are among several heavyweight companies hosting meetings next week, although due to the pandemic, they will be online and business may be restricted. Other high-profile AGMs taking place include BP (LSE:BP.), Centrica (LSE:CNA) (Monday), Prudential (LSE:PRU) (Thursday) and Ocado (LSE:OCDO).

The AGM season has already seen plenty of shareholder protest votes, with the “golden handcuffs” pay arrangement for BAE Systems (LSE:BA.) boss Charles Woodburn resulting in almost 25% of votes being cast against the company's remuneration report on Thursday.

There was also a massive backlash against Rio Tinto (LSE:RIO)’s pay policy in a year which included the destruction of a 46,000-year-old Aboriginal heritage site while expanding the Pilbara iron ore mine in Western Australia.

AstraZeneca (Tuesday 11 May)

A remuneration policy brought in only a year ago has been updated by the drugs giant to recognise that the “world has drastically changed” in the last 12 months.

It said the “visionary leadership” of CEO Pascal Soriot and other directors in developing a not-for-profit Covid-19 vaccine at the same time as delivering on financial targets, had highlighted the need for sufficient flexibility to reward exceptional performance.

The company is seeking shareholder approval for a renewed remuneration policy where the potential maximum long-term share award for Soriot increases to 650% of his £1.3 million base salary, from the 550% agreed at last year's AGM.

Astra is also using headroom under the existing policy to increase Soriot's maximum annual bonus opportunity in 2021 to 250% of salary from 200% in 2020. His single figure remuneration was £15.4 million last year and £15.3 million the year before.

Advisory groups Institutional Shareholder Services (iSS) and Glass Lewis have both recommended that investors vote against the resolution on the new remuneration policy and on changes to the company's performance share plan.

While acknowledging the company's recent strong performance, ISS said the rationale for the changes was not sufficiently compelling to warrant bringing forward a remuneration policy vote at this AGM. The policy is supposed to last three years, with its introduction dependent on 50% of shareholder votes being in favour.

Astra said it had taken into account feedback from 21 of its largest shareholders when devising the changes. It added: “The importance of being able to offer our impactful CEO a remuneration package competitive with our European peers, has been a key theme in discussions with our shareholders.”

Meanwhile, a separate meeting on the same day will enable Astra shareholders to vote on the company's takeover of US-based Alexion Pharmaceuticals for $39 billion (£28.1 billion).

BP (Wednesday 12 May)

Bernard Looney's ambitious plans for making BP a net-zero carbon emitter by 2050 have not stopped the oil giant being the subject of another climate-related special resolution.

Despite welcoming the direction of the CEO's new green energy strategy, lobby group Follow This is pressing for targets more closely aligned with those of the Paris Climate Agreement.

Follow This said: “We believe that the company could lead and thrive in the energy transition. We therefore encourage you to set targets that are inspirational for society, employees, shareholders, and the energy sector.”

BP's targets set out in February 2020 include being net zero across its entire operations by no later than 2050 and to cut the carbon intensity of the products it sells by 50% by 2050. Its pledges also include a 10-fold increase in investment in low carbon to about $5 billion (£3.6 billion) annually by 2030 and the same increase in the number of electric charging points.

BP has recommended that shareholders vote against the Follow This resolution, arguing that it would have a negative impact on the company delivering its Paris-consistent strategy.

It said: “The board and leadership team believe it is time for the company to focus on execution and delivery, rather than revisit targets and aims, as would be necessitated by the resolution.

“We firmly believe that such an intervention in the strategy at this stage would set back the delivery of BP's net zero ambition and investor proposition.”

 Governance experts at Institutional Shareholder Services (ISS) are supportive of the company, noting that shareholders at the 2019 AGM received a binding commitment from BP that it will  develop its climate strategy in line with the Paris goals.

ISS added: “BP's current climate reporting, which includes short, medium and long-term objectives and targets, is considered to be a sufficient and appropriate response to the matters raised in the resolution at this time.”

All other resolutions at the BP AGM, including the remuneration report, have the support of ISS and fellow advisory group Glass Lewis.

Ocado (Thursday 13 May)

A board of two women and 10 men has made the grocery delivery technology business the worst in the FTSE 100 index for gender diversity, according to advisory group ISS.

The 17% of female directors is below the target of 33% in this year's Hampton-Alexander Review, and has prompted ISS to recommend shareholders vote against the re-appointment of Andrew Harrison, who is Ocado's senior independent director and member of the nomination committee.

The company's female boardroom representation was reduced after November's departure of Claudia Arney to lead the board of Deliveroo, while Rick Haythornthwaite joined the board at the start of 2021 ahead of replacing Lord Rose as chairman at next week's AGM.

In its annual report, Ocado said it was committed to increasing the percentage of women and ethnically diverse individuals on the board and in senior management.

Harrison is also under pressure as chairman of the remuneration committee, given that advisory group Glass Lewis is unhappy that “extremely large payouts” based on shareholder value creation could reflect market forces rather than company performance.

Some 20% of votes were cast against Harrison's re-appointment at last year's AGM amid a big protest over founder and chief executive Tim Steiner's total pay of £59 million for 2019. The rewards were inflated by an incentive plan, with Ocado pointing out at the time that it had created up to £7.5 billion of value for shareholders in the five years up to that point.

In addition to Steiner getting a further £7 million in 2020, the advisory group is also unhappy this year about the pay of Stephen Daintith, following his appointment as chief financial officer in March on a base salary of £550,000, about 25% higher than his predecessor.

ISS also has ongoing concerns about the structure and quantum of the variable pay packages for directors but has not recommended a vote against the remuneration report.

Rolls-Royce (Thursday 13 May)

Shareholders are being asked to approve a new remuneration policy under which chief executive Warren East will be paid a proportion of his salary in shares.

The unusual move is part of a bespoke solution designed by Rolls in response to the specific challenges facing the company in the wake of the Covid-19 crisis. The policy, which replaces one only approved by shareholders a year ago, will see existing bonus and long-term incentive schemes replaced with a blended plan of short and longer-term metrics.

Initially, the scheme will focus on the priority of restoring financial stability and is targeting benchmarks on free cash flow (37.5%), pre-tax profit (37.5%), cost base reduction (15%) and employee engagement (10%).

The target award level for East will be 220% of salary, with a potential maximum of 385%. For 2022 and 2023 longer-term metrics will be introduced, including targets such as net debt reduction, cumulative profit and cash, and total shareholder returns.

East's base salary of £943,500 is staying the same, but with 30% of his pay set to be deferred into shares for two years. Rolls shares are 103p, compared with 232p at the start of 2020.

Rolls said: “This creates alignment with the long-term interests of our shareholders and balances the focus on shorter-term metrics, helping to ensure the longer-term balance in the reward package.”

The short-term targets in the new policy will focus East on his aim for Rolls to generate £750 million of free cash flow next year, having got through £4.2 billion of cash in 2020 when flying hours were significantly disrupted. East is confident that the company is over the worst, having bolstered its balance sheet with a £2 billion rights issue in Novembe

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