Newsflash: Glass Lewis publish UK proxy voting guidelines for 2021

Glass Lewis has published its revised 2021 proxy voting guidelines for the UK. A summary of the key changes made is provided below. These include updated guidance on remuneration committee discretion, pensions, workforce engagement, human capital management and diversity on boards. The full guidelines can be read here.
 

Remuneration-related changes

Alignment of remuneration with stakeholder experience

• Remuneration committees are expected to retain a level of discretion to ensure that remuneration outcomes for executive directors align with company performance, as well as shareholder and employee experiences. Glass Lewis may recommend that shareholders vote against the remuneration report where there is substantial misalignment in this regard in the past fiscal year.
• Furthermore, forward-looking decisions should also take into account the experience of shareholders and employees.
• Glass Lewis may recommend that shareholders vote against the remuneration policy where there is evidence that executive fixed pay and/or total opportunity increases are substantially outpacing employee salary increases.
   

Use of discretion

Glass Lewis generally expect remuneration committees to consider exercising downward discretion where:

• A company has suffered an exceptional negative event that has had a material negative impact on shareholder value; or
• A company's decisions regarding working conditions have had a material negative impact on employees.
   

Pension alignment

• Glass Lewis expect the remuneration committee to provide additional disclosure regarding the committee's commitment to reduce the pension contributions for incumbent executives by the end of 2022.
   

Restricted shares

• In addition to previous guidance around restricted shares (e.g. 50% discount rate), Glass Lewis has clarified that awards should be subject to an appropriate underpin and expect to see a long-term strategic alignment in proposals.
   

AIM companies – remuneration proposals

• Where an AIM listed company does not provide shareholders with a say on pay, and egregious remuneration practices are identified, Glass Lewis may recommend shareholders vote against the remuneration committee chair.
   

Other changes

Workforce engagement and human capital practices

• In egregious cases where a board has failed to respond to legitimate concerns with a company’s employee engagement or broader human capital management practices, Glass Lewis may recommend voting against, as applicable, the NED designated to represent the views of the workforce, the chair of the committee tasked with oversight of the company’s governance practices, or the chair of the board.
• Human capital management issues are “not limited to a company’s policies and disclosure on workforce diversity and inclusivity measures; rather, boards should be considered broadly accountable for direct oversight of workplace issues at large, which includes labour practices, employee health and safety, and employee engagement, diversity, and inclusion”.
   

Board and workforce diversity

Diversity of Ethnicity and National Origin at Board Level

• Glass Lewis expect FTSE 350 companies to provide meaningful disclosure regarding their performance against the board ethnic diversity targets set in the Parker Review (e.g. that FTSE 100 companies and FTSE 250 companies should include ‘at least one director of colour’ by 2021 or 2024, respectively).
• They will begin highlighting where FTSE 350 companies have failed to provide meaningful disclosure in this regard and, in future years, will consider recommending that shareholders vote against the re-election of the chair of the nomination committee where disclosure and/or performance does not improve.
• In egregious cases where a board has failed to address legitimate shareholder concerns regarding the diversity of ethnicity and national origin at board level, Glass Lewis may also recommend that shareholders vote against the re-election of the chair of the nomination committee.
   

Gender diversity

• Glass Lewis will generally recommend against the chair of the nomination committee at any FTSE 350 board that has failed to meet the 33% board gender diversity target set out by the Hampton-Alexander Review, and against the chair of the nomination committee at any other company on the LSE’s main market that has failed to ensure that the board is not composed solely of directors of one gender. Limited exceptions may apply to these policies.
   

Environmental and social risk oversight

• Beginning in 2021, Glass Lewis will note as a concern when boards of companies listed on the FTSE 100 index do not provide clear disclosure concerning the board-level oversight afforded to environmental and/or social issues.
• Beginning with shareholder meetings held after January 1, 2022, Glass Lewis will generally recommend voting against the governance chair of a board who fails to provide explicit disclosure concerning the board’s role in overseeing these issues.
   

Smaller premium-listed companies

• From 2021, there will no longer be exceptions to certain board composition and election policies for premium-listed companies outside the FTSE 350. In line with the recommendations of the UK Code, it is expected that boards of all premium-listed UK companies (i) be at least 50% independent; and (ii) hold annual, rather than staggered, director elections.