Investor power: ‘significant dissent’ is increasing. © Getty
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Board directors who sign off excessive pay packages are being targeted by big investors, which have stepped up their campaign against unwarranted executive remuneration at the UK’s largest companies.

The average vote against the re-election of remuneration committee chairs increased by almost half at FTSE 100 companies in 2017, according to data from the Pensions and Lifetime Saving Association, the trade association made up of more than 1,300 retirement schemes.

Investors have traditionally signalled their concerns over high pay by voting against remuneration reports and policies at annual meetings, while board directors have historically enjoyed large support from investors.

But Luke Hildyard, stewardship and corporate governance policy lead at the PLSA, said voting against reports and policies has not been effective.

“[Voting against individual directors] sends a powerful message. It will hopefully sharpen minds,” he said.

High pay has risen up the agenda since the financial crisis. The concerns is that chief executives’ salaries are out of step with the wider workforce. Theresa May, UK prime minister, has promised to curb excessive pay awards to chief executives.

The PLSA updated its guidelines for members two years ago, advising a vote against the re-election of remuneration board chairs if the investor had concerns about pay. Several big asset managers, including Schroders and Standard Life Aberdeen, the UK’s largest listed fund houses, are also targeting individual directors.

One investor said their company had decided to vote against directors after a chair of a board said: “People aren’t going to listen to you until you start voting against them.”.

Euan Stirling, global head of stewardship and environmental, social and governance investing at Standard Life Aberdeen, said the asset manager voted against individuals’ re-election “as a point of escalation”, usually after a vote against a pay policy or report. “This is proving to be a useful tactic,” he said.

Jessica Ground, global head of stewardship at Schroders, said the company’s policy was to vote against the person if the remuneration chair remained in post a year after a vote against pay. “Repeat offenders are being singled out,” she added.

Last year, most investors voted against the re-election of Trevor Schultz, a member of the remuneration committee at Centamin, the FTSE 250 gold miner. The company reappointed Mr Schultz but removed him from the remuneration committee.

Overall votes against remuneration committee chairs remain low, at just 3.37 per cent last year in FTSE 100 companies, but up from 2.3 per cent on the previous year, according to the PLSA.

The PLSA’s report shows there were 49 pay report and policy resolutions with “significant dissent” in 2017 at FTSE 350 companies, up from 38.

In total, one in five FTSE 350 companies faced significant dissent in 2017 over all motions, including pay.

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