* Cineworld, JD Sports among those to face a rebellion
* Investors warn on use of restricted share plans
* More tussles expected as bulk of AGMs still to come
By Elizabeth Howcroft and Simon Jessop
LONDON, Feb 12 (Reuters) - After taking billions of pounds
in government money and furloughing staff during the pandemic,
Britain's blue-chip companies are being warned by investors to
rein in executive pay and perks or risk a rebellion at upcoming
annual meetings.
The push-back comes as companies in sectors from hospitality
to travel grapple with a collapse in revenues while trying to
incentivise their top staff to stay and help lead a recovery.
Among the most contentious pay proposals so far was cinema
chain Cineworld's plan to give its chief and deputy chief
executives a bonus of up to 65 million pounds ($89 million) each
if performance and share price targets are met.
That plan was considered too generous by some shareholders,
with nearly a third of votes cast rejecting it.
The clash could be the first of many if more companies look
to push through post-pandemic pay and perks that are too high,
too easy to achieve and tone-deaf to broader society's
struggles.
"This is going to be a very controversial year for
remuneration," said Rebeca Coriat, head of stewardship at
Lombard Odier Investment Managers.
"Companies have to walk a very fine line (in terms of)
variable compensation given that, of course, executives will
have worked very, very, very hard in 2020, but maybe the results
and the performance ... do not reflect that."
Retailers WH Smith and JD Sports are among
other companies to have already faced significant investor
resistance over their pandemic pay arrangements, although no
major companies have had their plans voted down so far.
Cigarette-maker Imperial Brands saw around 40% of
voting shareholders oppose the directors' remuneration report at
its annual general meeting (AGM) last week, while 36% of voters
opposed the director pay plan for publisher Future on
Wednesday, which could see its CEO receive 40 million pounds.
"A company that has had to make redundant a very large
number of employees, and maybe even take government help, should
not be paying a bonus, or a very large bonus," Coriat said.
Votes on future remuneration are often not binding, and so
even defeat for a company may have little practical effect - a
point highlighted by social justice lobby groups. But in
reality, a large investor rebellion is often enough to get firms
to change policy in order to smooth relations with shareholders.
Companies have claimed 46.4 billion pounds ($64.1 billion)
from the UK government's pandemic job retention scheme, as of
Dec. 13.
Many investors will scrutinise whether companies have used
this scheme and how executive rewards compare with pay for the
workforce as a whole.
Mirza Baig, head of investment stewardship at Aviva
Investors, said he would also consider if companies had limited
sick pay allowances for staff, "which incentivised behaviours
which we think culminated and added to the health risk both for
employees and for broader society."
Baig said Aviva had seen a 30% increase in the number of
consultations with companies in the second half of 2020, leading
up to the 2021 AGM season, and expects to allocate more
resources to assessing pay issues this year.
"I don't want to paint a completely bleak picture to say
that we're expecting everyone to come back in an irresponsible
way, however we have seen a number of companies that have
removed financial underpins (to bonus plans, and) have looked to
replace failing awards with new awards, with different
performance conditions," he said.
In 2020, 26 companies in Britain's FTSE All-Share index saw
at least 20% of votes cast against their pay policy, up from 11
in 2019, according to the Investment Association. The bulk of
2021 AGMs will be in March and April.
"We think it's really important that the experience of
executives reflects the experience of the shareholders, and that
we don't see windfall gains," said Lisa Harlow, head of
investment stewardship for EMEA at Vanguard.
Some companies have responded by turning to restricted share
plans this year, a form of longer-term incentive based on share
price, rather than individual performance.
Informa passed a restricted share plan at a meeting
in December, with 41% of votes against it, while SIG and
Provident Financial passed such schemes with minimal
shareholder resistance in recent months.
Kalina Lazarova, head of governance at BMO Global Asset
Management, said BMO generally does not support restricted share
plans, "because we believe they can lead, over time, to
increased complexity and higher pay for poor or mediocre
performance".
Even executives in companies which have performed well over
the past year should be wary of reputational damage from being
seen to benefit excessively from the pandemic, said Lazarova,
adding deferring bonuses could limit potential criticism.
Zehrid Osmani, manager of the Martin Currie Global Portfolio
Trust, said he was having extended discussions with companies to
avoid excessive payouts should revenues and share prices bounce
back after pandemic restrictions are lifted.
"We want to ensure that remunerations are adapted
constructively for the exceptional recession of 2020, and for
the exceptionally strong recovery from the lows that 2021 is
likely to bring," he said.
($1 = 0.7242 pounds)
(Reporting by Simon Jessop and Elizabeth Howcroft. Editing by
Mark Potter)
