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Beware: UK-listed multinationals that want to offer their bosses US-style salaries have received greater approval from investors this year. But executive pay remains a contentious issue. The latest in the crosshairs is equipment rental company Ashtead, which is seeking investor approval for a plan to pay US-based CEO Brendan Horgan up to $14 million.
The plan was rejected by proxy groups ISS and Glass Lewis, results that usually infuriate business leaders, whose attitudes toward proxy voting range from “frustration and irritation on one side of the spectrum to militant hostility on the other,” according to a study based on interviews with top FTSE 100 politicians.
One criticism is that consultants have double standards. In countries such as the US, agencies support big packages, but in the UK they frown on that. With the UK’s biggest firms paying their bosses on average around a third as much as their S&P 500 rivals, it is hard for the UK to compete for talented executives, the firms argue. Indeed, FTSE 100-listed Ashtead argued this week that its success depends on attracting and retaining high-calibre talent “based in the US”.
However, there is no reason why a one-size-fits-all approach should be more appropriate: proxy advisory firms tailor their recommendations to local laws or governance norms and the views of investors – in other words, their clients.
The second accusation – that consultants are inflexible – is more serious, according to Suren Gomtsyan of the London School of Economics. Of course, there are exceptions. This year, Glass Lewis said Smith & Nephew had made a “compelling case” for paying its US-based executives more, but ISS recommended rejecting it.
This illustrates how different the approaches of proxy advisors are. Almost a third of investors use more than one adviser. They often represent different views, particularly ISS and Glass Lewis. In two-thirds of cases where one advised voting against a report, the other gave the opposite recommendation in 2022, according to a paper from the UK’s Financial Reporting Council.
More than 28 percent of institutions almost exclusively followed the advice of one of the three proxy advisors – ISS, Glass Lewis or Hermes EOS – in all say-on-pay votes, Gomtsyan found in a study of 1,271 say-on-pay proposals from the FTSE 100 between 2013 and 2021. These were often foreign institutions that invested in the UK market as part of a diversification strategy. They were less likely to have strong opinions on the corporate governance of individual companies.
At the same time, the influence of UK institutions that rely less on external experts has waned as their share of UK equities has declined, giving the agencies an important role. But blaming proxy recommendations for unpleasant disputes over salaries misses the point. Ultimately, investors are the ones who call the shots – not the advisers.
