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The (AGM) of Britain's fourth-biggest supermarket, WM Morrison Supermarkets plc, was the backdrop for the largest investor shareholder revolt so far this year and the second biggest on an executive pay issue since the Investment Association started tracking votes in 2017. Following advice from shareholder advisory group, PIRC, to reject Morrisons’ remuneration plans, the 10 June meeting saw shareholders relay a clear message to the board with the (non-binding) resolution to approve the directors’ remuneration report.

Rebecca Sherratt at shareholder voting information specialists, Proxy Insight, comments: ‘The substantial opposition Morrisons’ “say on pay” proposal faced in June marks the highest level of opposition towards a remuneration report in the U.K. so far this year and highlights that investors are being increasingly critical of excessive CEO payouts that fail to take into account the volatility brought about by COVID-19.’

The salaries of David Potts (chief executive), Trevor Strain (chief operating officer) and Michael Gleeson (chief financial officer) remain unchanged this year at £850,000, £665,000, and £490,000 respectively, and both the CEO and COO have voluntarily committed to a reduction in their pension levels to bring them in line with those available to the workforce by the end of 2022. However, according to the , Potts received an annual bonus of £1.7m (up from £828,000 last year) equating to 100% of his maximum payment opportunity, and £1.396m as part of the Long Term Investment Plan (LTIP), contributing to a total of £4.18m in remuneration. Strain received £1.33m (up from £633,000 last year) contributing to a total of £3.19m in remuneration. This follows a year where Morrisons’ profits halved to £165m due to pandemic-related costs, causing the supermarket to fall off the FTSE 100. The remuneration committee exercised its discretion to adjust its calculation on remuneration, taking account of material exceptional events or actions such as capital expenditure ‘which were not in the contemplation of the Committee at the time the targets were set and which might otherwise materially distort the outcome in order to ensure that vesting of the LTIP is an accurate and fair reflection of performance’. However, as the AGM result shows, shareholders are not convinced that the remuneration committee has adjusted bonuses appropriately according to the current financial state of the business.

The need to balance executive pay with company performance will be an issue high on the agenda for a number of shareholders this AGM season. Proxy Insight’s Sherratt continues: ‘It is of increased importance to investors this year that pay sufficiently aligns with performance and companies that attempt to dismiss the impacts of the pandemic when calculating executive compensation will find themselves under heavy scrutiny from investors. Shareholders expect disclosure to be robust and payments to be modest, and will take voting action against remuneration reports and compensation committee members where this fails to be the case.’

At last year’s AGM, the remuneration policy received a as it was highlighted that Potts’ pension contribution was 1% away from the Investment Association’s red top, which flags company directors who are paid more than 25% of salary as a pension contribution. For more on this, see: Shareholder opposition as pension Pott stands 1 % away from a ‘red top’. Since then, the company has made no statement outlining the actions taken following the vote result and the outcomes of those actions. However, this year the company commented in its :

‘It is a matter of sincere regret to the Committee that it clearly has not been able to convince a majority of shareholders - or the proxy voting agencies - that this was the right course of action.  The Committee looks forward to re-engaging with shareholders, listening to their views, and once again making the case for why discretion was used in a genuinely exceptional year which produced a genuinely exceptional performance from the executive leadership.’

Similar backlash has been seen at JD Sports ahead of its AGM. According to the , executive chair Peter Cowgill voluntarily took a 75% cut to his basic pay for several months during COVID-19, reducing it to £700,000, while his annual bonus was lowered from £1.7m to £1.3m. However, according to the annual report, Cowgill received four instalments of £1.5m over the course of 2020 and 2021 as part of a special bonus disclosed in the 2018/19 remuneration report which was then approved by shareholders. Shareholder advisory group Glass Lewis has urged investors to vote against what it dubs an ‘i�Բ������DZ�������ٱ�’ pay policy, particularly as the retailer received £61m through the UK furlough scheme, an additional £25m in wage support from other countries where it operates and an estimated £38m in business rates relief. The FTSE 100 company has also taken the decision to revive dividend payments to shareholders, however, unlike other retail giants such as Primark, has refused to repay taxpayer money.

JD’s AGM will be held on 1 July 2021 when shareholders will again vote on directors’ remuneration. Cowgill has defended himself, commenting in an interview with BBC Radio 4’s World at One programme: ‘I have only received one LTIP in eight years, over that period the profits went from £82m to £420m, but I have only received one’. Like Morrisons, this is the second consecutive year that the company’s remuneration has attracted shareholder opposition. At last year’s AGM, JD’s remuneration policy and report as well as the LTIP all received significant no votes. For more on this, see: JD’s lack of sportsmanship leads to significant no votes.

Remuneration has remained a hot topic during the first wave of AGMs to kick start the season. Our preliminary data shows that Rio Tinto shareholders also voted down its remuneration report and policy with respectively against the resolutions. Recent Market Tracker research in relation to resolutions attracting significant no votes (commonly classified as votes against in excess of 20%), saw 22 companies with significant opposition against the company’s remuneration report and 11 companies with significant dissent against the company’s remuneration policy. Another resolution commonly attracting dissenting votes is the re-election/election of directors with 17 companies recording a significant no vote from shareholders. This will be further explored in our upcoming AGM shareholder voting trend report, which will be published later this year and will look at the voting patterns across the FTSE 350 for the 2021 AGM season.