Burberry set for tough reception over chief executive's pay packet

Burberry is braced for a substantial protest vote at Friday's annual general meeting after the British luxury brand angered investors with a more than £20m pay deal for new chief executive Christopher Bailey.

Investor groups Pirc and the Investment Management Association (IMA) have flagged their concerns ahead of the event with proxy voting firm Manifest giving the company's pay policy and report a "D". In the past companies that have attracted that type of criticism have suffered protest votes of around 30%.

"I think there will be a significant no vote but I don't think it will be a majority," said one investor. "There seems to be a lack of clear linkage between pay and performance. Christopher Bailey has been a very successful creative director but there is no guarantee he will be a successful chief executive and Burberry are paying him as if he already is one."

In May the Guardian revealed details of Bailey's contract which includes a £440,000 cash allowance. Other elements of his remuneration include a £1.1m salary, an annual cash bonus of up to twice that salary and share awards of up to four times salary. Last summer the company also handed Bailey a one-off award of free shares worth almost £15m.

"The cash allowance isn't the key issue," said Manifest chief executive Sarah Wilson. "Very few companies in the FTSE 100 have such poor pay governance procedures so Burberry's approach is going to have disappointed many shareholders."

Pirc, which has advised shareholders to vote against the company's remuneration policy, warned, among other things, that executive directors' incentive schemes are "excessive" as potential payouts could be more than eight times their base salary. In turn the IMA, whose members manage £4.5tn of assets, issued an "amber top" alert over pay – its second most serious level of rebuke on corporate governance.

The shareholder meeting comes hot on the heels of a strong set of figures from the trenchcoat-maker. On Thursday Burberry said like-for-like sales rose 12% in the three months to 30 June which was ahead of analysts forecasts of around 8%. There was a sting in the tail, however, with finance director Carol Fairweather warning the strong pound would take a bigger bite out of profits this year than previously thought. Burberry's fixed costs are in Sterling but its revenues are in a variety of currencies with adverse movements expected to reduce annual profits by £65m rather than £50m previously outlined. That did not dent investors' enthusiasm for the company with Burberry the biggest riser in the FTSE 100 with the shares closing up more than 3% at £14.64.

Bailey, who to date has been reticent in his dealings with the business press, did not join a conference call with journalists but said in a statement: "This first quarter performance reflects our focus on striving to give customers the best possible experience of the Burberry brand through ongoing investment in retail, digital and service, both on and offline. The 12% increase in comparable sales demonstrates our teams' success in unlocking the benefits of these investments, as we continue to concentrate on the things we can control in an uncertain external environment."

Larger rivals such as Louis Vuitton and Gucci have seen sales start to slow as big spenders tire of global brands that are too ubiquitous. Demand in China, a key luxury goods market, has also been hit by a government crackdown on corruption and conspicuous spending. However Burberry bucked that trend to report growth of more than 10% in the Asia Pacific region "led by mainland China".

Burberry's continued success is in part down to its willingness to embrace the digital fashion revolution. It streams its catwalk shows online and in stores, allowing customers to order products for early delivery with a personalised touch, such as an engraved nameplate in a coat or bag. A presence on Chinese social media sites such as Sina Weibo (the country's version of Twitter), Youku (similar to YouTube) and Douban has also helped Burberry outperform rival brands in the region.

Barclays analyst Julian Easthope believes the Burberry figures will turn out to be the best of its peer group over the period: "This was despite a tough comparison with last year and reflects the group's ability to convert traffic both online and offline thanks to its investment in retail, digital and customer service."