City row erupts against proxy advisers over executive pay
A row has erupted in the City over how the use of proxy voting advisers by shareholders is influencing executive pay in the UK.
Richard Moriarty, chief of the UK’s Financial Reporting Council, argued in an interview today that boards should oppose proxy advisers’ attempts to quash higher levels of executive pay.
“There’s no law in this country that stops chief executives being paid more,” he added in an interview with Bloomberg.
As the government has increasingly pushed the FRC and other regulators to promote economic growth and competitiveness in the UK, many have been re-examining executive pay as a potential draw for talent.
“Being blunt, we’re unlikely to have the fiscal levers to compete with Biden’s Inflation Reduction Act or the EU’s Green Deal initiative,” Moriarty said. “Therefore, governments will look for all levers to contribute to growth and regulation will have to take its part in it.”
However, proxy advisers, which recommend how shareholders vote at company meetings, have often been criticised for blocking the hiking of executive pay.
Earlier this year, Glass Lewis urged Abrdn shareholders to vote against the company’s pay report due to the £675,000 salary awarded to the recently appointed chief financial officer, a 25 per cent jump from its previous CFO.
Therefore, Moriarty said the FRC is currently examining the role of proxy advisers and weighing whether they should be subject to stricter oversight.
“There is definitely a question for me about whether the expectations on proxies in our stewardship code are in need of review, given the importance they now are in the economy,” he added.
The complaints from Moriarty mirror many coming from the City over recent months, as companies have increasingly moved their listings to the US while business leaders struggle to compete on talent against Americans.
Last week, St James’s Place chief executive Mark FitzPatrick lashed out against proxies on executive pay, arguing that asset managers “need to take back ownership from the proxy agencies”.
“The industry has ceded too much control to proxies. We need to get it back,” FitzPatrick added.
Proxy agencies have increasing power due to the growth of asset managers’ passive investments, which means they are outsourcing voting decisions more and more often.
Meanwhile, London Stock Exchange chief Julia Hoggett said last year that the ability of UK companies to attract top talent was being “hampered” by proxy advisers voting against pay packets.
Defenders of ISS and Glass Lewis have noted that in two-thirds of UK cases in 2022 when one suggested a vote against a resolution, the other recommended a vote in favour
There is clear evidence from the US that ISS influences voting outcomes, but a spokesperson for the firm told Morning Wire that it recommended against roughly 8.2 per cent of pay-related proposals at FTSE 350 firms last year, but less than one per cent failed to receive majority support.
“Clearly, investors decide themselves how to vote,” the spokesperson said.
Additionally, the clients of proxy voting advisers seem to be satisfied, as only six per cent of investors reported being dissatisfied with the research they pay for.