The Pensions and Lifetime Savings Association (PLSA) has published a revised version of its Corporate Governance Policy and Voting Guidelines.
The main changes in emphasis include the following:
Leadership: In addition to a board’s accountability to shareholders for protecting and generating sustainable value over the long term, the Guidelines specifically state that directors are required under the Companies Act 2006 to have regard to other stakeholders, including workers, customers, suppliers, wider society and the environment, and that boards should be aware of these requirements when carrying out their work.
Accountability: Several changes have been made to the 2015 Guidelines to underline the importance of a company’s workforce to its long-term success. In the PLSA’s view, improvements are needed in the reporting of corporate culture and how the company’s employment model and working practices relate to its underlying purpose and business model.
Remuneration: The PLSA references growing concern at the size of executive pay packages and their structure. It believes that the evidence that pay incentives are necessary to motivate or reward executives and to achieve success for companies is questionable, and urges remuneration committees to take a critical and challenging approach to pay increases and be prepared to exert downward pressure on executive pay.
The Guidelines also contain new material regarding voting at AGMs:
Resolution 1: annual report and accounts. The PLSA states that if shareholders do not see better disclosure on the stability, skills and engagement levels of a company’s workforce in coming years, a vote against the annual report would be appropriate. Likewise, if there is no clear evidence that diversity is being sufficiently considered by the board, a vote against the chair or, if not the same individual, the chair of the nominations committee may be warranted.
Resolution 2: approval of the remuneration policy. The PLSA states that pay policies should ensure that maximum pay-outs remain in line with shareholders’ and other stakeholders’ expectations, including workers and wider society. If shareholders judge that the company’s remuneration policy fails to meet the PLSA’s principles, then they may decide to vote against the policy. Pay policies likely to bring the company into public disrepute or foster internal resentment, owing to their excessive value and/or overly generous incentives and rewards, also justify a vote against.
Resolution 3: approval of the remuneration report. A new section stresses the importance of the role of the chair of the remuneration committee in working effectively with shareholders to understand their concerns. The Guidelines recommend that PLSA members who vote against a company’s remuneration policy or report should, in most cases, also vote against the re-election of the remuneration committee chair as a director. Additionally, given the advisory only vote on the remuneration report, it is more appropriate for shareholders to vote against any remuneration report that they feel unable to support rather than to abstain.
Resolution 5: re-election of directors. The Guidelines specify that directors’ formal performance evaluation should be done in the context of the fulfilment of that director’s duty to act in the long-term interest of the company on behalf of its members, while also having due regard for other stakeholders, as outlined in the Companies Act 2006.