What’s the Story?

Last month Georgeson, a subsidiary of giant Computershare, issued its European AGM 2023 Season Review; including the 2023 AGM Directors’ Remuneration Report vote results for the UK FTSE 100.

The Georgeson report shows how the DRR vote outcomes were swayed by the UK proxy voting recommendations of ISS, Glass Lewis, The Investment Association (IVIS) and PIRC. From this it is clear that ISS and Glass Lewis have the biggest say on institutional shareholder voting intentions by far.

The Investment Association (IVIS) has a more nuanced approach. Its thoughtful narrative reporting often results in an “Amber Top” status. That flags for users areas of investment judgement when exercising their governance voting opinion or control. The Amber Top status is now commonly seen, and for 2023 FTSE 100 AGMs occurred in 39 cases, which is not a new phenomenon.

PIRC has near universal opposition to executive compensation reports; but this comes with seemingly zero influence on voting behaviour. The five companies with PIRC support should perhaps look again at their executive compensation. In the extreme, PIRC approval may be seen as stock sell signal.

Why Does it Matter?

Proxy voting agencies have huge influence on the voting behaviours of global institutional shareholders on important corporate matters. And yet all are privately owned, unregulated; and unaccountable.

Proxy voting agencies design their own compliance rules, often reflecting local governance codes and regional governance norms. But the same proxy voting agencies have markedly different rules for different geographies. The UK and Europe ones are more constrained by far than the USA on executive compensation for example.

Institutional investors use proxy voting services to sub-contract some corporate governance responsibilities. That makes sense. The same analysis happening in hundreds of fund managers, for many thousands of companies, would be wasteful.

But because proxy voting agencies use their standard templates to judge compliance, their approach is criticised as Box-ticking. And that is what it is in many cases.

Unfortunately, the upshot is that compliance with Proxy local governance yardsticks becomes more important than thoughtful comment on a complex array of business needs. Which is strongly value destructive.

Newspoint view

The proxy voting agencies have tight rules for the UK and Europe on top pay, but in the USA the same firms apply much looser rules.

The London Stock Exchange big tent debate on UK top pay global competitiveness rolls on unresolved.

The IA 2024 Principle of Remuneration has still yet to be published - with half the year now gone. The UK debate on top pay competitiveness seems stalled.

We should look deeply at proxy voting agencies and urgently. Companies are wary of crossing the line into “explain” when that converts too readily into a “vote against” proxy recommendation by the box tickers.

Many institutional shareholders follow the Proxy vote recommendations blindly. Some from fear of litigation, others from lack of resource. So, the upshot is “cookie-cutter” pay plans which are both sub-par for the business, and often uncompetitive with the USA.

The ancient Romans asked the question “Quis custodiet ipsos custodes” translated “Who will guard the guards?”. We should ask the same thing about the Proxy Voting Agencies.

Companies need a level playing field for executive compensation globally, and soon.

Executive Compensation and Incentive Design

Reward and Share Plans

Remuneration Advisory and Support

ESG and Sustainability

Please feel free to email or call:

Damian Carnell - [email protected] +44 (0) 7989 337118

VA Bec Bostock - [email protected]

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