Remuneration Report Research Articles

Shareholders as Stewards: Evidence from Belgian General Meetings

Shareholder activism is at the heart of the corporate governance debate. This study investigates shareholder activism through the voting turnout as well as the voting behavior of large and small shareholders and the resolutions voted at annual general meetings (AGMs) of Belgian listed companies.The mean voting turnout was 56.0 per cent in 2012, up from 49.9 per cent in 2011. The attendance of small shareholders is significantly lower at 20.4 per cent, providing evidence that large shareholders control de facto almost 80 per cent of all Belgian listed entities.Opposition is generally low while dissent for the remuneration report and for some director elections is higher. When small shareholder approval rates would be taken in consideration, several board proposals would have been defeated, including almost 20 per cent of the remuneration reports. Similarly, almost 10 per cent of the candidate directors are not supported by a majority of the small shareholders. However, all directors were (re)elected due to the majority position of the blockholders at Belgian AGMs.As the important decision taking body, we recommend reforming the position of the AGM providing in better stewardship. The role of the AGM should be oriented towards a discussion platform between board and different types of shareholders for eg. policy making rather than its present function of formal decision making body. We end with policy recommendations to enhance the role of the AGM and empower the AGM for taking for policy decisions.

The Relevance and Effects of the Executive-to-worker Pay Ratio’ Disclosure

The purpose of this conceptual paper is to analyze the say-on-pay policies and practices in 5 different countries: UK, USA, Switzerland, Germany and Australia. The focus of the research is on the disclosure of the executive-to-worker pay ratio. The author discusses about the relevance and effects of such practice on firm performance and employee motivation, loyalty and productivity, as well as on the investors’ decisions. This article addresses those issues through a comparative approach, by selecting pay ratio-relevant theoretical and empirical studies. The results indicate that the disclosure of pay ratio improves the firm’s and individuals’ performance and therefore it should be introduced as an obligatory part of the yearly remuneration report.

Will a Binding Vote by Shareholders on the Remuneration of Directors Affect Corporate Value?

Directors’ remuneration has always been a controversial topic, in the court of public opinion the verdict seems to be that they are overpaid and this has led to a feeling of injustice. However misplaced this opinion is bearing in mind that most of the public may be guilty of looking at the value of the remuneration package alone and not the bigger picture of how well the company may have performed, the recent crisis in the banking industry has lent credence to the argument that executives are indeed being overpaid. The main arguments have been that the executives have undue influence over the composition and the value of their remuneration packages as well as the fact that these packages are not seen to be performance sensitive. Flowing from the above as well as outcries for increased shareholder activism, the United Kingdom inter-alia introduced in 2002 a directors’ remuneration reform which provided that at every Annual General Meeting (AGM) companies are required to present their remuneration report to a non-binding vote by shareholders. This vote popularly known as ‘say on pay’ acts as an advisory vote meant to signal to the board the shareholders’ approval or disapproval of the remuneration report, the board is not bound to act based on the outcome of the vote. In other jurisdictions such as Australia, provision has been made at the AGM for a binding vote by shareholders on the remuneration reports presented by the board, the difference here being that these sort of votes force the company to act based on its outcome and is not merely an advisory vote. This sort of vote is popularly referred to as ‘binding say on pay’ and this project aims to compare the effectiveness of both say on pay systems in order to discover which is more fit for the purpose. This project attempts to do this by an examination of the jurisdictions to which each of these say on pay systems have been applied in order to highlight the difficulties and the successes that have been experienced in its implementation. At the conclusion of this project the aim is to make suggestions for directors’ remuneration reform within the corporate governance regime which would be effective in curbing the alleged excesses in directors’ remuneration packages as well as result in an increase in firm value.

Performance measures, benchmarks and targets in executive remuneration contracts of UK firms

This paper is a descriptive analysis of performance measures, benchmarks and targets in remuneration contracts for a sample of 1269 plans from 440 UK firms for 2002/2003. Data were collected from the remuneration reports that became a mandatory disclosure following the Directors’ Remuneration Report Regulations (2002). The descriptive analysis is divided into two main sections. In the first section, performance measures and benchmarks employed are examined. Consistent with earlier analyses of performance measures (Conyon et al., 2000; Conyon & Murphy, 2000; Pass, Robinson, & Ward, 2000), earnings per share (eps) and total shareholder return (TSR) are the two most popular measures, with share option plans often employing the former and LTIPS the latter. However, it is also possible to observe a shift in the popularity of LTIPs over share options since 2002. When investigating the choice of performance measures used in plans, there is evidence that suggests underlying volatility in the performance measure can affect its being chosen, but this is overridden by instances of mimicry and institutional isomorphism (Di Maggio & Powell, 1983). The second section provides a descriptive analysis of targets set in a sub-sample of plans that employ eps as a performance measure. Here, targets tended to cluster around levels that have been prescribed in guidelines, which again suggests that a certain degree of isomorphism is present. Also, plans tend to have targets lower than past and forecasted performance, and targets set were met six times out of ten. The use of lower and upper threshold targets helps control attainability, but less than half of plans specify an upper threshold target. Observations suggest that the remuneration setting process falls victim to institutional isomorphism in the absence of clear and concrete guidelines regarding what is considered acceptable.

How Difficult are Executive Remuneration Targets? UK Evidence

This paper provides a descriptive analysis of the use of performance targets in executive remuneration plans and its difficulty and attainability relative to past, expected and realized performance. From 31 December 2002, UK firms are required under the Directors’ Remuneration Report Regulations (DRRR) 2002 to disclose performance targets and benchmarks used in executive remuneration plans in the Remuneration Report. This study uses the first instance of the disclosure of the targets and benchmark from the financial year 2002/3 for a sample of 1269 plans from 440 largest UK firms. Results indicate that earnings per share (eps) and total shareholder return (TSR) are the two most popular performance measures used in long term remuneration plans, while most firms provide vague information regarding performance measures in short-term (annual bonus) plans. More firms are using long term incentive plans (LTIPs) in place of share option plans relative to observations made by Conyon et al (2000). Plans that use eps as a performance measure often benchmark against growth relative to the retail price index (RPI) while plans that use TSR often benchmark against a peer group. For a sub-sample of 291 plans using eps as a performance measure, target attainability is analysed relative to past, forecasted and realized eps growth. Results indicate that targets set in executive remuneration contracts are highly attainable, with targets being met six times out of ten. The use of lower and upper threshold targets help control attainability, but less than half of plans specify an upper threshold target.

Disclosure, shareholder oversight and the pay–performance link

This paper investigates the effect of increased shareholder oversight and disclosure about executive remuneration on the pay–performance relation, while controlling for contemporaneous changes in corporate governance practice. Our sample consists of 240 ASX-listed firms with annual reports available for each year over the period 2001–2009, a period which straddles the timing of regulatory change. We initially document the conjectured improvements in remuneration disclosure and shareholder oversight in the form of the advisory vote on the remuneration report. Following, we find as predicted a general strengthening of the pay–performance relation over the study period, with the increased sensitivity of reported CEO remuneration to firm performance being primarily related to enhanced remuneration disclosure and the non-binding shareholder vote on the remuneration report. Our results lead us to conclude that enhanced oversight over executive remuneration arrangements brought about by regulatory change has positively impacted the executive remuneration process by strengthening the pay–performance relation and making the process appear more accountable.

Disclosure, Shareholder Oversight and the Pay-Performance Link

This paper investigates the effect of increased shareholder oversight and disclosure about executive remuneration on the pay-performance relation, while controlling for contemporaneous changes in corporate governance practice. Our sample consists of 240 ASX-listed firms with annual reports available for each year over the period 2001-2009, a period which straddles the period of regulatory change. We initially document the conjectured improvements in remuneration disclosure and shareholder oversight, in the form of the advisory vote on the remuneration report. Following, we find, as predicted, a general strengthening of the pay-performance relation over the study period, with the increased sensitivity of reported CEO remuneration to firm performance being primarily related to enhanced remuneration disclosure and the non-binding shareholder vote on the remuneration report. Our results lead us to conclude that enhanced oversight over the executive remuneration process brought about by regulatory change has positively impacted the executive remuneration process by strengthening the pay-performance relation and making the process appear more accountable.

A Remuneration Index: Quality of the Remuneration Disclosure in Swiss Firms During Last 10 Years

This paper analyses the quality of the remuneration disclosures in Switzerland during last 10 years (2000 to 2009). First, it briefly mentions the corporate governance/remuneration principles of Swiss regulatory bodies, EU, UK, USA, and ICGN. Then, it focuses on the ICGN and the Swiss remuneration standards to analyze 100 Swiss firms on SPI UBS 100 Index, Swiss Stock Exchange. It is reasonable that Swiss compensation principles are the main source to establish a remuneration quality index since they are traded in the Swiss Stock Exchange. On the other hand, the ICGN standards were also picked because it represents the international investors’ point of view. The remuneration index is made up of 39 questions in line with all items of the Swiss and ICGN remuneration principles, and it includes 4 sub-indices. The quality scores of each individual firm for each year were evaluated in the scale from 1 (very bad) to 6 (very good). 824 remuneration or corporate governance reports were investigated and they were scored for the quality of disclosures over 10 years by the help of the remuneration index. Finally, I have noted the quality of the remuneration disclosures improved after 2007, since they are more consistent with the stated regulations. Moreover, over the last 10 fiscal years (2000 to 2009), financial and industrial sectors, specifically banks and industrial engineering sectors, are more successful in the reporting of the remunerations. To sum up, the descriptive results of this paper may help the academics and the regulatory bodies grasp the quality of the implementation of remuneration principles in the Swiss corporate business and develop further researches on this issue.

Shareholder Voting and Directors' Remuneration Report Legislation: Say on Pay in the UK

ABSTRACTManuscript Type:EmpiricalResearch Question/Issue:The paper investigates the determinants of shareholder voting and its relation to CEO pay in the UK. The context of the study is the Directors' Remuneration Report (DRR) Regulations of 2002. This legislation gave shareholders a mandatory non‐binding vote on boardroom pay in the UK.Research Findings/Insights:First, we find that less than 10 per cent of shareholders abstain or vote against the mandated Directors' Remuneration Report (DRR) resolution. This percentage is falling over time. Second, investors are more likely to vote against DRR resolutions compared to non‐pay resolutions. Third, shareholders are more likely to vote against general executive pay resolutions, such as stock options, long‐term incentive plans, and bonus resolutions compared to non‐pay resolutions. Forth, firms with higher CEO pay attract greater voting dissent. Fifth, there is little evidence that CEO pay is lower in firms that previously experienced high levels of shareholder dissent. In addition, there is little evidence that the fraction of CEO equity pay, representing owner‐manager alignment, is greater in such firms. Currently, we find limited evidence that, on average, “say on pay” materially alters the subsequent level and design of CEO compensation.Theoretical/Academic Implications:The study provides new insights on shareholder voting and CEO pay. Theoretically, shareholder voting is endogenously determined.Practitioner/Policy Implications:The study provides insights for practitioners and policy makers interested in shareholder rights, the effects on corporate governance, and say on pay in the UK. Shareholder voting appears to have limited effects on curbing excess CEO pay. Boards and compensation committees may want to communicate better policies on executive compensation to avert shareholder dissent.

Boards' Response to Shareholders' Dissatisfaction: The Case of Shareholders' Say on Pay in the UK

In 2002, the United Kingdom adopted a regulation allowing shareholders to cast non-binding (advisory) votes on their firm's Directors' Remuneration Report during annual general meetings (the 'Say-on-Pay' rule). This study evaluates a decade of this regulation and examines how it affected the behavior of shareholders and boards in a sample of FTSE 350 firms during the period 2002-2012. I find evidence that shareholder dissatisfaction increases with excess CEO compensation. This relationship does not exist for the expected level of compensation, suggesting that shareholders take a sophisticated approach when casting their vote. Boards do not appear to respond to shareholder dissatisfaction systematically, however they do respond selectively by reducing the excessiveness of CEO compensation when performance is poor. Boards also seem to respond swiftly to shareholder dissatisfaction. There is evidence that the probability of CEO turnover increases with shareholder dissatisfaction. Overall, the evidence suggests that 'Say-on-Pay' regulation addressed regulatory concerns about transparency, accountability, and performance linkage.

Shareholder Voting and Directors’ Remuneration Report Legislation: Say on Pay in the UK

This paper investigates shareholder voting in the UK. The Directors’ Remuneration Report (DRR) Regulations of 2002 gave shareholders a mandatory non-binding vote on boardroom pay. First, using data on about 50,000 resolutions over the period 2002 to 2007 we find that less than 10% of shareholders abstain or vote against the mandated Directors’ Remuneration Report (DRR) resolution. Second, investors are more likely to vote against DRR resolutions compared to non-pay resolutions. Third, shareholders are more likely to vote against general executive pay resolutions, such as stock options, long-term incentive plans and bonus resolutions compared to non-pay resolutions. Forth, firms with higher CEO pay attract greater voting dissent. Fifth, there is little evidence that CEO pay is lower in firms that previously experienced high levels of shareholder dissent. In addition, there is little evidence that the equity pay-mix, representing better owner-manager alignment, is greater in such firms. Currently, we find limited evidence that, on average, ‘say on pay’ materially alters the subsequent level and design of CEO compensation.

Is the Outrage Constraint an Effective Constraint on Executive Remuneration? Evidence from the UK and Preliminary Results from Australia

The managerial power thesis of Professors Lucian Bebchuk and Jesse Fried argues that outrage is perhaps the only effective constraint on executive remuneration, where the board of directors is effectively dominated by a sufficiently powerful CEO or senior management group. The advisory vote on the Directors' Remuneration Report in the UK provides empirical evidence on the effect of the outrage constraint on subsequent remuneration arrangements. Evidence from a sample of FTSE 100 companies for the first 3 years of the vote - 2003 to 2005 - suggests outrage via the advisory vote is having an effect on remuneration practice. Its efficacy as a constraint seems to be linked to the willingness of investors to bring errant companies into line with best practice guidelines issued by key institutional investors, as well as government-sponsored initiatives (for example, the Rewards for Failure consultation by the Department of Trade and Industry). Preliminary results on the advisory vote in the ASX 200 suggest Australian investors are using the vote on issue of securities to specific directors under an employee incentive scheme, required under ASX Listing Rule 10.14, as well as the advisory vote under s 250R(2) Corporations Act 2001 (Cth), to register outrage.