UK pension fund trustees, like their Australian counterparts, are turning their corporate activism towards the remuneration of boards.
Pension Investment Research Consultants managing director Alan MacDougall says UK pension funds are starting to vote against excessive pay deals for directors and retirement packages, although most packages are approved by the time it comes to voting.
“Government regulations now require shareholder votes on remuneration reports,” he told the second Australian Council of Superannuation Investors (ACSI) conference in Melbourne last month. “Payment for failure is the area of most concern, along with a number of CEOs paying themselves US-style pay packages.”
In the UK recently, the chairman at Glaxo Smith Kline saw his proposed retirement package defeated by 51 per cent of shareholder proxies.
Another difference that has started to occur in UK voting patterns is the rising number of abstentions. In some cases, these proxies now exceed the ‘no’ vote.
In Australia, the number of dissenting votes cast at annual meetings where remuneration packages are discussed is still very low. The recent AMP meeting to vote on issuing preference shares to directors saw only 26 per cent of shares voting, with 3.5 per cent against.
PSS/CSS CEO Steve Gibbs says this shows Australia still has a long way to go. “Many superannuation funds have developed corporate governance policies and are expected to become more active in enforcing these in the future,” he says.
The push, he says, is for trustees to get away from the ‘tick the box’ approach to corporate governance, which has been common in the past.
Gibbs says the option of selling the stock, if a fund doesn’t like what is happening with a company, benefits nobody. “But if there is a remunerations vote in a company, and the recommendation is against, my fund will vote against the motion,” he says.
MacDougall says over 50 per cent of shareholders in the UK are voting at company meetings. “We want to see 60 per cent of shareholders voting, but most institutional investors don’t do it.”
ACSI has been researching the structure of the Top 100 listed Australian companies and Dr Geoff Stapledon of the University of Melbourne has found the independence of directors is improving.
“Our definition of independence was based on the IFSA guidelines,” he says. “We have found non-executive directors make up 49 per cent of directors on those boards.”
The reasons why some directors are no longer classed as independent is that they have been on a board for more than 10 years (27 per cent) or have a substantial shareholding in the company (16.2 per cent).
The number of women directors on boards has grown from 3.9 per cent in 1995 to nine per cent this year.
Another area of concern, however, is that directors are sitting on too many boards. The ACSI survey found 93 per cent of executive directors do not sit on more than one board. In addition, 61 per cent of non-executive directors only sat on one board and only 0.9 per cent had five directorships.
Caltex Australia chairman Dick Warburton told the conference that one of the reasons why the same people end up on boards was the small gene pool of potential directors in Australia.
