Fidelity International has today (20 July) announced its support for an annual binding vote on executive pay, backing part of the new prime minister Theresa May’s leadership campaign earlier this month.
As part of Ms May’s campaign for leadership, she said annual shareholder votes on corporate pay should be binding rather than advisory.
Legislation introduced by Vince Cable in 2013 forced companies to hold legally binding votes on future pay policies every three years.
Fidelity International stated it has since informed all its UK and European investee companies it would only support companies prepared to extend their holding periods - which require shares to be held after long-term incentive plans pay out - to more than three years from 2014, and more than five years from 2015 following the introduction of this legislation.
According to the firm, it has been able to bring about significant change in the executive pay rewards of the UK’s largest companies as a result of this move.
Furthermore, the firm believes making the binding vote annual would provide further impetus for the campaign to encourage companies to make long-term plans on performance and pay.
At the start of 2013, only four companies in the FTSE 100 had holding periods of five years or more and a further 13 of between three and five years.
However, Fidelity International claimed as a result of its engagement, 48 now have five-year LTIPs and a further 17 are between three and five years.
Within at the FTSE 350, the number of companies with a holding period of five years or more has risen from just six to 118, while those between three and five years has risen from 17 to 52.
The firm added it continues to vote against companies that have failed to extend the holding periods for their LTIPs to five years or more.
As such, within the FTSE 350 year to date, it has voted against at least one remuneration proposal at 55 per cent of meetings.
LTIP share holding period data for FTSE 100*
| June 2016 | May 2015 | June 2014 | Jan 2013 |
Companies with a holding period of 5 years or more) | 48 | 42 | 27 | 4 |
Companies with a holding period of over 3 years but less than 5 years | 17 | 18 | 20 | 13 |
Companies with a holding period of 3 years or less or no LTIP | 35 | 40 | 53 | 83 |
LTIP share holding period data for FTSE 350*
| June 2016 | May 2015 | June 2014 | Jan 2013 |
Companies with a holding period of 5 years or more | 118 | 87 | 48 | 6 |
Companies with a holding period of over 3 years but less than 5 years | 52 | 57 | 58 | 17 |
Companies with a holding period of 3 years or less or no LTIP | 137 | 168 | 204 | 327 |
* Source: Fidelity International as at 18 July 2016. Excludes investment trusts/unit trusts. Includes companies that have provided a private commitment to extend their holding period but have not yet published their latest report
Dominic Rossi, global chief investment officer of equities at Fidelity International said: “The legislation introduced in 2013 gave shareholders a powerful new tool to influence companies’ policies on pay.
“We used this opportunity to campaign for better alignment between executive compensation and the longer-term performance of the company. As a result of our work, there has been a significant rise in the number of UK companies endorsing holding periods of five years.
He added Fidelity International first called for an annual binding vote in 2012, and extending shareholder powers even further will add significant momentum to our efforts to better align executive pay rewards with shareholder interests.
ruth.gillbe@ft.com
