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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Mind the gap: UK-listed multinationals wanting to offer bosses US-style pay packets have won a more sympathetic hearing from investors this year. But executive pay remains a contentious subject. Equipment rental company Ashtead is the latest in the crosshairs. It is seeking investor approval for a plan to pay chief executive Brendan Horgan, a US resident, up to about $14mn.
The plan has received the thumbs-down from proxy agencies ISS and Glass Lewis. Such findings tend to infuriate business grandees. Their attitudes to proxy voting agencies range from “frustration and irritation at one end of the spectrum to militant hostility at the other”, according to one study based on interviews with FTSE 100 leaders.
One beef is that advisers have double standards. Agencies support big packages in countries such as the US but frown on them in the UK. Given that the largest UK companies pay bosses roughly a third as much on average as their S&P 500 counterparts, this makes it hard for the UK to compete for talented executives, companies argue. Indeed, FTSE 100-listed Ashtead argued this week that its success relied on attracting and retaining high-calibre talent “who are residents of the US”.
But there is no reason that a one-size-fits-all approach would be more appropriate: proxy advisory firms tailor their recommendations to local rules or governance norms and the views of investors — in other words their clients.
The second grouse — that advisers are inflexible — has more heft, according to Suren Gomtsyan of the London School of Economics. To be sure, there are exceptions. This year Glass Lewis reckoned Smith & Nephew had given a “compelling rationale” for paying more to its US-based leaders, though ISS recommended rejection.
This illustrates how proxy advisers take different approaches. Nearly a third of investors use more than one adviser. They often offer divergent views, especially ISS and Glass Lewis. In two-thirds of cases where one advised a vote against a report, the other made the opposite recommendation in 2022, according to a paper from the UK’s Financial Reporting Council.
More than 28 per cent of institutions almost invariably followed the advice of one of the three proxy advisers — ISS, Glass Lewis or Hermes EOS — across all say-on-pay votes, Gomtsyan found in a study of 1,271 FTSE 100 say-on-pay proposals between 2013 and 2021. They were often overseas institutions investing in the UK market as part of a diversification strategy. They were less likely to have strong views about the governance of individual companies.
Meanwhile, the influence of UK institutions, which are less likely to rely on external experts, has dwindled, as their ownership of UK shares has fallen. That gives the agencies an important role. But blaming proxy recommendations for awkward showdowns over pay misses the point. In the end, investors — not advisers — call the shots.
