Companies warned not to dismiss pay revolts

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Investor groups have raised the alarm about shareholder pay revolts being ignored, after a series of big votes against remuneration reports were publicly dismissed by companies.

The Association of British Insurers, the National Association of Pension Funds and Pirc have lined up to warn companies that winning the vote against a major revolt is not a victory. Instead, they insist that a revolt should trigger talks over investors' concerns.

Their attack on boardroom complacency comes after a number of extraordinary votes at annual meetings this year that showed institutional shareholders taking a stronger line on executive pay. The most recent revolt came at the Misys annual meeting last month, when 37 per cent of votes were cast against the remuneration report. The financial software group's response was that it listened to its shareholders but had won a clear majority for the pay plan at the meeting.

Other companies that have had major uprisings on pay this year include Ladbrokes. In May, shareholders delivered a 29 per cent vote against the pay plan with more than 40 per cent withholding support. At the time the bookmaker said it had noticed the disquiet registered by some investors and had "recorded it for future reference".

Aberdeen Asset Management also suffered a 29 per cent opposition on pay at its January AGM, with lack of approval reaching a third of votes including deliberate abstentions. Aberdeen said it won the vote clearly and that it needed the right pay policy to retain its "world-class talent".

WPP had a huge 42 per cent vote against its remuneration report in June. Sir Martin Sorrell, the advertising group's chief executive, responded that the unrest was "a matter of excessive micro-managing".

Pirc, the governance adviser, is pointing out these public responses to its clients.

A Pirc spokesman said: "There is a worrying trend among some companies to automatically classify anything under 50 per cent of votes against as a 'win'. If companies are receiving a level of shareholder opposition that puts them on the far end of the spectrum of results, they really shouldn't be interpreting or presenting that as a success."

The Association of British Insurers let non-executive directors know that a 75 per cent vote in favour was not a victory when it set out its revised pay principles last month. Marc Jobling, the head of corporate governance at the ABI, said: "Since the crisis began there has been an uptick in the level of dissent and some companies may have been badly advised that it was about getting it through the vote.

"We see the remuneration report vote as an opportunity for shareholders to show their support for companies' plans or remuneration policies. We don't see it as a contested election and votes around or below 75 per cent should not be seen as successes."

Non-executives are increasingly likely to find themselves and their reputations in the firing line if they ignore shareholder concerns over pay.

At Misys, Sir James Crosby, the former boss of HBOS who now chairs the software maker, and John Ormerod, the senior independent director, failed to get the support of almost 10 per cent of shareholders.

David Paterson, the head of corporate governance at the NAPF, said: "When there's a big vote against then the company needs to understand the reasons why. A persistent failure to address investor concerns could lead to a vote against the re-election of a director."

Misys, WPP and Aberdeen Asset Managemetn declined to comment. Ladbrokes said the unpopular measure was a one-off.