With a new corporate governance framework and executive compensation rules on the horizon, UK-listed companies saw an increase in shareholder opposition of compensation packages and director elections. According to the Wall Street Journal, almost 20% of the FTSE 100 experienced more than 20% shareholder opposition to their pay resolutions, double the number that received such opposition in 2017. The 20% opposition margin to a management resolution is significant under under revised UK corporate governance rules that take effect January 1. The rules will require boards to engage with shareholders after the vote to determine the reasons for the opposition and explain the steps the company will take to address the concerns. In the FTSE 250, 80 companies received more than 20% opposition to a pay resolution, up from 38 in 2017.
If the rule were in the effect in the United States, an ISS “Against” recommendation alone – which correlates to a drop of 25% shareholder support – would render the company subject to mandatory shareholder engagement. For many companies that already engage on compensation and other governance issues, this may not be a major issue. However, for activist coalitions, achieving 20% opposition to a say on pay resolution may be easier to force the company to publicly address an issue than achieving majority support for a nonbinding shareholder proposal seeking similar ends.
According to the article, the 20% threshold has already resulted in UK companies making formal statements that contain an outline of how the company will engage with shareholders after receiving high levels of shareholder dissent on management pay proposals.