Fewer FTSE 100 shareholder revolts and CEO pay decreases

• Fewer ‘low votes’ on pay in FTSE 100
• FTSE 100 CEO median package now £3.4m (previously £4m)
• Around one-third of FTSE 100 companies reduced pensions for new exec hires
• FTSE 250 shareholder support for pay at its lowest level in five years

The number of FTSE 100 companies receiving low votes (below 80% in favour) on pay fell by around a half - 7% of companies compared to 13% last year, according to a preview of Deloitte’s annual FTSE 100 executive remuneration report.

In contrast, the FTSE 250 experienced a more challenging AGM season, with around one-in-six companies (16%) receiving low votes on the annual remuneration report, the highest level of shareholder dissent seen in this market for the last five years.

However, in general, levels of investor support remain high with a median shareholder vote of around 96% across the FTSE 350.

Stephen Cahill, vice chairman at Deloitte, said: “It has been a quieter AGM season for the largest companies with fewer shareholder revolts. However investors have shown that they will continue to bite when companies fall foul of their expectations on pay.

“We are seeing continued evidence that investors expect the same standard of disclosure and engagement on pay across the UK market, with declining levels of shareholder support in the FTSE 250. In particular, we are seeing pressure from investors for improved transparency around bonus plans, as well as an expectation that remuneration committees will apply judgment and discretion where pay-outs are not considered to reflect the shareholder experience.”

Regulation

The impact of regulatory changes under the new UK Corporate Governance Code are being felt with FTSE 100 companies moving to reduce executive pensions and implement requirements for executives to hold shares post-leaving.

Cahill added: “We have seen many companies come forward as ‘first movers’ in response to new regulatory changes with 29 companies reducing pensions for new hires. Without a doubt, executive pensions have been the hottest topic of 2019 and we expect this to continue, with a growing focus on incumbent executives receiving the highest pension rates.”

FTSE 100 Pay

The median package for a FTSE 100 chief executive was around £3.4m in 2018, compared to £4m in the previous year.

The report found that almost a third of FTSE 100 CEOs received no increase in base salary, with median salary increases remaining at around 2%. In 2018 bonus pay-outs remained similar to the previous year (median of 70% of maximum compared to 72% the previous year), although the range of pay-outs fell slightly.

“Since the introduction of the 2014 reporting and voting regime, we have seen remuneration levels stabilise and a significant shift in the simplification of pay packages.” Cahill explained. “Time horizons have also extended and, under the vast majority of long-term incentive plans, executives will now have to wait five years to receive any shares.”

Only 5% of FTSE 100 companies now operate more than one long-term incentive plan, compared to almost half of companies five years ago. 85% of FTSE 100 performance share plans, executives will now receive no shares until at least five years from grant, compared to around half (45%) of plans in 2014. This will increase further in the coming year following changes to the UK Corporate Governance Code. The median shareholding requirement for a FTSE 100 CEO is now 300% of salary, although around one half of CEOs hold shares worth more than 500% of salary.

Cahill concluded: “In the coming year we expect to see a further shift in reduced pensions and requirements for executives to hold shares post-leaving. Given current uncertainty in the UK business environment, shareholder pressure and regulatory controls should be balanced with the need to ensure that the UK is able to attract the calibre of talent that can deliver continued prosperity for businesses.”

End

Notes to editor

Deloitte’s “Directors’ remuneration in FTSE 100 companies - October 2019” report includes data in respect of 96 companies with financial years ending up to and including 28 February 2019.

The analysis covers companies who have held their AGM in 2019. This includes companies with financial years ending on or after 30 September 2018 up to and including some, though not all, companies with a March 2019 year end.

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The information contained in this press release is correct at the time of going to press.

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