AGM season this year continues to see significant shareholder votes against remuneration. Unhappiness is expressed through “nonbinding” votes on remuneration policies and implementation of those policies.
According to JSE listings rules, if a company gets less than 75% support from shareholders, it must “engage” with those shareholders to discuss the issues.
With the present raft of AGMs, sharply negative views have been expressed. For example, shipping company Grindrod could muster only 48% support for its implementation report and gold miner Sibanye 53%. But the unhappiness wasn’t over the quantum of the payments — indeed, others such as Kumba Iron Ore (99%), Old Mutual (96%) and MTN (95%) have been getting the nod from shareholders despite often paying more.
It is also hard to see in the voting pattern a clear link between pay and performance. Grindrod’s share price doubled in the relevant year, for example. Rather, the problem shareholders seem to have is with the level of discretion that boards and management have in determining the variable pay components of packages.
This might strike you as an odd thing to get so hit up about. Discretion is what you should endow a board of directors with if you want them to be empowered to run a company. However, given the risk of “management capture” of boards, governance trends have been to strip discretion back as much as possible. The remuneration policy should set out that incentives are tied to objective outcomes. The implementation report should make clear how those outcomes were achieved and how they translated into remuneration.
However, I assure you that few, if any, fund managers sit down and study the remuneration reports in detail to come to a view on whether to endorse them. Indeed, fund managers are much more interested in the detail of the performance of the business. Instead, proxy advisers, a type of consulting firm, tell shareholders what they say best practice is and how the company complies with it.
If a company is found lacking on any of the technical requirements of best practice, in the view of the proxy adviser, they get a red mark. Some shareholders then mechanically vote their shares accordingly.
Some shareholders are more active. In the chaos of the Covid-19 crisis, a lot of remuneration rules books were torn up and some shareholders got upset about it. Several performance indicators suddenly became impossible to hit, and for a period it was all about survival.
•Stuart Theobald is chair of Intellidex. This article first appeared in Business Day