Your vote counts: massive bonuses, big salaries and diversity

by Graeme Evans from interactive investor |

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Shareholders get a chance to have their voices heard on these important issues. Which way will you vote?

Potential AGM flashpoints next week cover issues of diversity, the payment of executive bonuses in a year of furlough support, and the bumper salary of a new CEO.

The three companies at risk of suffering shareholder revolts at the start of the main season for annual meetings are Drax (LSE:DRX), Foxtons (LSE:FOXT) and Domino's Pizza Group (LSE:DOM) respectively, with voting advisory groups recommending votes are cast against certain resolutions.

Other meetings next week include those of FTSE 100-listed Bunzl (LSE:BNZL) and fellow support services firm Serco (LSE:SRP) on Wednesday, with housebuilder Taylor Wimpey (LSE:TW.)'s taking place on Thursday.

Meanwhile, a special meeting at funeral services firm Dignity (LSE:DTY) is being billed as a vote on whether to hand executive control to largest shareholder, Phoenix Asset Management.

There's still time for shareholders to cast their votes ahead of these important meetings. That's something interactive investor clients can do by accessing the Voting Mailbox in their online account. There, they will find notifications for all the UK-listed companies they own shares in, with links to view an event or place a vote.

Drax (Wednesday 21st April)

The power generation firm is facing criticism at its AGM after voting advisory agency Glass Lewis highlighted that the number of women on the company's board was below the 33% threshold recommended in the Hampton-Alexander Review.

Glass Lewis takes a case-by-case approach to gender diversity, but noted Drax had failed to go beyond “boilerplate language” and provided little insight into the strategy the board is employing to enhance diversity.

It is recommending that shareholders hold the head of the nomination committee, company chairman Philip Cox, accountable by voting against his re-election.

In 2017, Drax set a target to increase female representation in senior leadership roles across the group to 40% by the end of 2020, but admitted in this year's annual report that progress has been slower than expected.

Two of its seven board directors and 29% of its senior leadership workforce — covering the top four career levels — are female, with 31.5% females in the total workforce.

Drax said: “During 2020, the board challenged management on the work required to improve in this area and to commit the necessary resources and time to make more impactful progress.”

Glass Lewis recommends that shareholders vote in favour of the company's remuneration report, under which chief executive Will Gardiner received £1.9 million remuneration for 2020.

Despite initial Covid-19 disruption, the North Yorkshire-based owner of the UK's largest renewable power plant finished the year by growing its dividend and share price and also reporting progress towards its ambition of being carbon negative by 2030.

The remuneration figure for Gardiner, who joined the company in 2015 and became chief executive in 2018, includes £767,000 from a long-term incentive scheme where total shareholder returns over a three-year period compared favourably against peers.

Gardiner also received an annual bonus of £439,000, just under half of which related to meeting targets on debt reduction and the cost of production. The remainder of the bonus is covered by the delivery of strategic objectives and will be deferred into shares that will vest in 2024.

Directors were given a 3% pay raise for 2020 and are set to get a further 2% rise for 2021, taking Gardiner's base pay to £572,000 from April.

Last year's AGM saw a strong level of support from shareholders, with 95% backing the triennial vote on remuneration policy and 99% in favour of the annual remuneration report.

Foxtons (Thursday 22nd)

Bonuses paid to chief executive Nic Budden and two other directors have come under fire after a year in which the estate agency chain utilised government support to pay wages for furloughed staff and also benefited from business rates relief.

Voting advisory body ISS is recommending shareholders vote against the company's remuneration report, as well as the re-election of pay committee chairman Alan Giles.

It said there was a “material disconnect” between the bonus outcomes and the company performance for the year, given the benefit of Government support. 

Bonus targets were originally set in February but, as Covid-19 rendered these irrelevant, a new set of targets were introduced in June. The company performed strongly against these, but the remuneration committee still used its discretion to reduce the overall outcome by 50%.

Budden received an annual bonus of £389,000 on top of his annual salary of £550,000.

Giles told shareholders that the rewards were “proportionate and appropriate” when taking into account the experience of shareholders and employees, as well as Government support.

About 750 of the company's 1,100 staff were furloughed in the first pandemic lockdown, with the company also raising £21.1 million from the placing of shares at 40p to support it through the closure of the property market. Shares recovered to 74p by mid-February.

Giles said: “The committee believes that the entire senior team, and in particular the executive directors, have provided extraordinary, inspiring and resourceful leadership during an unprecedented year of uncertainty and disruption.”

At the AGM last year, more than 20% of votes were cast against the FTSE All-Share company's remuneration policy. Foxtons said the level of support would have been greater had one of its largest shareholders not been prevented from voting due to operational difficulties resulting from Covid-19.

Domino's Pizza (Thursday 22nd)

The £750,000 a year salary being paid to new chief executive Dominic Paul has been criticised for being 41% more than the pay of predecessor David Wild, who left last year.

Voting advisory group ISS said Paul's base salary and the 109% rise to £480,000 for the recently appointed non-executive chairman were “exceptionally high” in the context of the company's ranking in the FTSE 250 index.

ISS has joined Glass Lewis in recommending to shareholders that they vote against the company's remuneration report at the AGM.

Its fellow voting agency said: “Glass Lewis views high fixed pay raises with scepticism, as such remuneration is not directly linked to performance and may serve as a crutch when performance has fallen below expectations.”

Glass Lewis is also concerned about the effect that a large increase in base salary can have on short and long-term incentives granted to executives. It prefers that salary increases of this magnitude are phased over a number of years to reflect experience and knowledge acquired.

Domino's has defended the pay levels, saying that they were necessary to attract the right candidate. Paul was chief executive of coffee shop business Costa before becoming CEO at Domino's, while new chairman Matt Shattock is the former CEO of spirits company Beam.

The annual report said: “Competition for high calibre talent with the specific skillset relevant to our business was fierce.

“We found that to attract the candidates that would meet the role profiles and success criteria, we needed to offer compensation that was higher than for the previous incumbents.”

Paul's fixed pay and total target compensation are in the upper quartile of the FTSE 250 but Glass Lewis questioned the use of this benchmark when the company is in the lower quartile.

Dignity (Thursday 22nd)

A resolution seeking the removal of executive chairman Clive Whiley will be put to a vote of shareholders at a special meeting of the funeral services business.

Phoenix Asset Management, which has a near-30% stake in the company, wants Whiley's place on the board to be taken by its founder and chief investment officer, Gary Channon.

In a letter to Dignity shareholders outlining its vision for the company, Phoenix said it had been left frustrated after two years trying to get the business “heading in the right direction”.

It said: “We do not believe it is in shareholders’ best interest to end that. As we have said before, we only have one way of benefitting from our work at Dignity and that is through the share price and dividends. It completely aligns us with all other shareholders.”

Phoenix is in favour of listing the company's crematoria business separately and retaining a majority holding as a way of raising capital and drawing attention to the value of Dignity's shares. It believes this division could be worth over £1 billion.

Dignity pointed out that many of the ideas disclosed by Phoenix were already being assessed in detail by the board as part of a root-and-branch review of the business led by Whiley. More details of the plan are expected to be revealed at the company's AGM in June.

The board has been boosted by voting advisory bodies Glass Lewis, ISS and Pensions & Investment Research Consultants (PIRC) after they recommended that shareholders should cast their votes against the two resolutions.

Dignity said last week: “In light of Phoenix's most recent statements, the independent directors are more convinced than ever that it is in the best interests of shareholders to allow the current management team to finish its work without handing executive control to Phoenix.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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