FTSE 100 Firms Feel Less Heat Over CEO Pay After Curbing Excess

(Bloomberg) -- The U.K.’s largest companies are having fewer confrontations with investors over executive pay, after many firms responded to demands they curb excessive practices.

Only nine members of the benchmark FTSE 100 Index endured rebellions over executive compensation that garnered more than 20 percent shareholder support at annual meetings so far in 2017, according to The Investment Association, the U.K. industry group whose members manage 5.7 trillion pounds ($7.3 trillion). That’s a 36 percent decrease from 2016, when 14 revolts met the same threshold, according to the study released Wednesday.

“Executive pay among the U.K.’s largest companies is starting to decline to a level more in line with shareholder expectations," said Chris Cummings, the Investment Association’s chief executive. “There is still some way to go, but a strong signal has been sent to boardrooms around the country.”

WPP Plc, which reduced Chief Executive Officer Martin Sorrell’s pay package by around 20 million pounds, and Reckitt Benckiser Group Plc, which cut CEO Rakesh Kapoor’s compensation by more than 40 percent to 14.6 million pounds, are among the companies that have pared back. Average CEO pay in the FTSE 100 declined by 17 percent to 4.5 million pounds in 2016, according to an August analysis by the Chartered Institute of Personnel and Development and the High Pay Centre, a non-partisan think tank.

Pressure has also come from the government, which published a so-called green paper request for corporate-governance proposals last year, although there was no mention of planned legislation in this area in the Queen’s Speech laying out the ruling Conservative Party’s agenda.

The progress might not be sustainable, according to Stefan Stern, director of the High Pay Centre. He said he had hoped that the government would act on proposals for corporate governance reforms and keep the pressure on.

“We have to be very careful not to be too self-congratulatory about one year of a slightly more energetic approach from shareholders," Stern said. “We have been here before, with so-called ‘shareholder springs’ and the like.”

Indeed, while shareholder friction has receded at the largest U.K. companies, it increased dramatically at companies a step smaller who are members of the FTSE 250 Index. There, revolts over executive pay more than doubled to 40 resolutions that received more than 20 percent support, according to the Investment Association. And 16 FTSE 250 directors were opposed by more than 20 percent of shareholders this year, compared with from zero in 2016.

“These smaller listed companies have not been the focus of executive pay controversies in the past, and it is unclear what may be driving this new development,” said Roger Barker, head of corporate governance at the Institute of Directors.

There are other reasons for shareholder dissent besides pay. Hermes Investment Management opposed Rio Tinto Group Chairman Jan du Plessis’s re-election because it felt women weren’t sufficiently represented on the board. At FirstGroup Plc there was a 22.7 percent vote against the election of Richard Adam because he had been the finance director of Carillion Plc for 9 years ahead of a heavy charge against problem contracts.

To contact the reporter on this story: David Hellier in London at dhellier@bloomberg.net.

To contact the editors responsible for this story: Jacqueline Simmons at jackiem@bloomberg.net, Anthony Palazzo, Paul Jarvis