Two proxy advisors have raised concerns over consumer goods giant Unilever in advance of the company's annual meetings on May 2 and 3 in London and Rotterdam. ISS has issued a warning about Unilever's 2018 consolidated pay plan, recommending that shareholders vote against the new "fixed pay" structure in their binding "look-ahead" shareholder vote. As a UK company, Unilever is subject to two say on pay votes, a nonbinding vote on pay granted in the past year (similar to the U.S. vote) and every three years a binding vote on executive pay policy over the next three years for executive officers. The ISS recommendation is against the company’s binding vote on forward looking pay. The 2018 changes are an extension of Unilever's new reward framework launched in 2017, (See Unilever annual report, page 47) and will incorporate base salary, allowances and pensions into one fixed pay element, in addition to forcing executives to invest their annual bonus in Unilever stock in order to benefit from the long-term incentive. (The company indicates that executive officers will only maintain current levels of pay if the annual incentive is invested in company stock). Moreover, any payout at 75% of maximum or above is subject to a further performance test by the Remuneration Committee, and the use of both negative and positive discretion is anticipated as part of the program.
However, ISS noted that the changes also resulted in "increases to both fixed pay and annual bonus potential" and warned that "whilst at first glance this alignment and simplification is likely to be welcomed by shareholders, the principal concern raised is that it comes at a price." ISS did approve Unilever's non-binding 2017 pay report for CEO Paul Polman, who received a 39% pay increase for 2017, but the same pay package was issued a "red-top" warning by an advisory service run by the Investment Association, which represents much of the UK asset management industry. The case is a reminder that amid increasing calls for simplification of pay design, investor understanding and acceptance is paramount and quantum is still a driving force in proxy advisor and certain investor recommendations on pay.