Shareholder pushback expected on UK executive pay as cost of living rises

ESG investors tipped to challenge firms on bumper bonuses and rising pay inequality as inflation pressures increase.

Executive remuneration in the UK is expected to trigger controversy again this AGM season as wage growth lags behind soaring inflation and CEO pay packages bounce back to pre-pandemic levels.

Preliminary research by accountancy firm PwC shows that, for the first 50 companies from the FTSE 100 to publish their remuneration reports, average CEO pay increased 34 percent in 2021. The increase was mainly driven by bonuses and resulted in an average payout of £4.1 million ($5.2 million; €4.9 million), up from £3.1 million in 2020 and close to the 2019 average of £4.2 million.

As the cost of living for workers rises, with inflation hitting 7 percent in March, British companies are expected to see pushback from investors concerned about the pay ratio between chief executives and the employee average.

“Especially ESG-conscious investors are likely to scrutinise post-pandemic pay and how the cost of living is impacting workers at the lower end of the pay spectrum,” says Luke Hildyard, director at the High Pay Centre, a UK think tank advocating policies designed to reduce economic inequality.

In the UK, legislation requires all publicly listed companies with more than 250 employees to publish the ratio between the total remuneration of their CEOs and the average remuneration of their UK employees. “CEO pay quantum goes hand in hand with the CEO pay ratio,” Hildyard says.

According to research by the High Pay Centre, the gap narrowed in 2020, with the median executive pay of FTSE 100 firms falling to 86 times that of the median full-time worker, compared with 107 a year earlier. However, figures for 2020 are ambiguous since many executives cut their own salaries at the height of the pandemic and pay-ratio reporting is retrospective. The High Pay Centre is set to publish figures for 2021 in the next few weeks, with the increase of total CEO pay expected to push the ratio up again.

Hildyard also warns that firms in labour-intensive sectors such as retail, hospitality, travel and leisure that employ workers on minimum wage will have to brace for increased investor scrutiny this AGM season as workers’ purchasing power diminishes. Despite many companies adding ESG metrics into remuneration schemes, Hildyard notes that workforce-related figures are “too little represented” and form only a small portion of total pay. “That is not a sufficient incentive,” he adds.


In the UK, two resolutions form the basis of executive pay disclosure, and thus provide an indication of investors’ sentiment towards substantial payouts by companies.

Director’s remuneration policy is subject to a binding vote at least every three years, or sooner in case revisions to the policy are made. By contrast, the remuneration report is voted on every year and details the exact figures paid out to directors. The report is advisory in nature and backward-looking, but can be used by investors to indicate dissatisfaction. The remuneration policy is forward-looking and an influential tool for investors to voice disagreement.

“This AGM season we are likely to see an increase in votes against executive pay packages and specifically investors being concerned about the quantum being paid out through generous bonus schemes,” a UK governance specialist told RI. Large bonuses would be particularly problematic for companies that that have relied on public money for furlough schemes during the pandemic, the specialist added.

The UK Investment Association (IA) treats votes of at least 20 percent against management proposals as “significant” and keeps track of those through its public register.

In its public register, the IA collects data from companies that are a constituent of the FTSE All-Share Index at the time the company held its annual general meeting.

In 2021, 58 companies recorded “significant” dissent against their advisory directors’ remuneration report, with four not reaching a majority on the issue: publisher Informa, supermarket chain Morrison’s and miner Rio Tinto’s UK and Australian reports.

Meanwhile, 23 companies faced rebellions last year against their binding vote on remuneration policy, with Russian gold miner Petropavlovsk not passing the vote.

So far this year, six companies have seen “significant” dissent against their remuneration report, including publishing group Future Plc, whose report did not reach a majority. Liontrust Asset Management, EasyJet and Compass Group have also seen significant shareholder rebellion against their remuneration policy, although all crossed the 50 percent threshold.

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