UK Companies Face Investor Pressure Over Executive Bonuses

UK Companies Face Investor Pressure Over Executive Bonuses

Several large enterprises in the UK have been taking heat from investors over the sizes of the bonuses they are paying out to their top-level executives. At Unilever, Sky News reported on Saturday, investors are expected to raise objections at its annual shareholder meeting next month over the millions of pounds in bonuses it paid out this year to its CEO and CFO:

Sky News has learnt that the advisory service run by the Investment Association (IA)‎, the fund managers’ body, has issued a “red-top” warning in relation to Unilever’s remuneration report. … ‎City sources said on Friday that the IA “red-top” related to the decision by Unilever’s remuneration committee to award annual bonuses worth €2.3m to Paul Polman, its chief executive, and €1.1m to Graeme Pitkethly, the chief financial officer.

The bonuses were the maximum possible under the company’s existing remuneration ‎policy, which is being overhauled this year. The IVIS service is understood to have been angered by that decision because Unilever’s underlying sales growth for last year fell short of the target figure by a small margin.

Unilever is not the only company where investors are balking at big payouts to executives. The Financial Times’ Attracta Mooney casts this as a broader trend, pointing also to the investment company Melrose, which specializes in acquisitions and turnarounds of underperforming companies, which has been subject to criticism this week after announcing that four of its executives would earn total pay packages of over £42 million for 2017. The construction company Persimmon is also taking heat for its plans to pay CEO Jeff Fairburn a bonus of £110 million as part of a bonus scheme described as among the country’s most generous (or, by critics, as “obscene”).

Some of the bonus schemes coming in for investor scrutiny are structured as long-term incentive plans or LTIPs, pay-for-performance schemes that offer top executives massive equity rewards, paying out after three to five years, if the company meets certain performance goals. Investors are beginning to balk at these plans, which they say are too complex for them to understand, are paying out much more than they expected, and (contrary to their name) motivate executives to inflate the value of their companies in the short term to meet their goals.

The investor pressure comes amid increasing public outcry over executive pay packages considered excessive, as well as heightened attention to this issue from the government. As part of a package of corporate governance reforms, the government announced last year that it planned to “name and shame” companies whose investors object to their executive remuneration proposals by publishing a register of all companies whose directors’ compensation plans are opposed from at least 20 percent of shareholders.