Remuneration still dominates UK shareholder engagement: NAPF 2015 AGM report

Investors eagerly awaiting new ‘viability statements’ for 2016.

The quality of engagement between companies and investors is improving, but conversations remain dominated by the topic of remuneration, finds the National Association of Pension Fund’s (NAPF) third annual review of the 2015 AGM season in the UK.
The AGM review, which informs NAPF’s Corporate Governance Policy & Voting Guidelines, says while engagement is covering a broader range of topics, remuneration remains “by far and away” the most engaged upon issue, despite scheme members, pension funds and fund managers all reporting that they consider it significantly less important than other issues.
Remuneration is the most common issue fuelling shareholder dissent among 12 FTSE350 companies named in the NAPF report as having successive years of investor concern with governance.
The report also focuses on shareholder rebellion on the re-election of directors drawing attention to 17 companies within the FTSE350 where resolutions received in excess of 15% dissent.
The report also highlights three high-profile shareholder resolutions this year, a rarity in the UK. It suggests this form of engagement may be used by more investors going forward. UK transport firm National Express faced a shareholder resolution calling for an independent review of its North American operations that got support from 15% of shareowners.Fossil fuel firms BP and Royal Dutch Shell endorsed a successful shareholder resolution around climate change risk disclosure tabled by a group of investors under the banner ‘Aiming for A’. The resolutions requested that both companies expand their annual reporting to provide greater information about their approach to managing the impacts of climate change on their business. Focusing on this resolution, the report says while some view it as a game changer, “it can also be argued that the demands included within resolutions are not very stretching”. It says the success of the resolutions will depend on the management of BP and Shell buying into the spirit and letter of the text.
Looking ahead to 2016, the NAPF says that investors are eagerly awaiting the new ‘viability statements’ that will require company directors to provide an improved and broader assessment of long-term solvency and liquidity over a period expected to be longer than 12 months. Early adopters of ‘viability statements’ include defence multinational BAE Systems and the UK’s largest water company United Utilities.
The report also says that the NAPF expects to engage with issuers and investors on human capital reporting over the coming months, saying this additional information from companies would help inform investment decisions.
The NAPF represents around 1,300 pension funds with more than £900bn (€1.2trn) of assets.
Link to NAPF report