LONDON—A majority of Smith & Nephew PLC's shareholders voted down the company's pay decisions for its top executives, over a rift on how it awarded bonuses.

The medical-device maker said 53% of investors opposed its remuneration report for 2015, though the nonbinding vote won't affect last year's management pay packages. That vote came hours after a majority of investors in oil giant BP PLC voted down its executive-pay policy.

The rebellion centered on the remuneration committee's decision to award a combined £ 2.1 million ($3 million) in bonus payments to Smith & Nephew's top 60 executives even though the company's total shareholder return lagged behind the median of its peer group. That decision overrode the company's own pay policy, which stipulated that management would receive a bonus only if total shareholder return was at or above that benchmark.

Joseph Papa, chairman of the remuneration committee, said in the company's annual report that the decision was "not taken lightly," and reflected volatility within the peer group. Of the 18 companies in Smith & Nephew's peer group at the start of the period, three were acquired, resulting in share-price spikes for those companies. Danaher Corp. bought Nobel Biocare Holding AG, Medtronic Inc. (now Medtronic PLC) bought Covidien PLC and Smith & Nephew itself bought ArthroCare PLC.

Mr. Papa sais that Smith & Nephew's total shareholder return over the previous three years, at 80%, was "significantly ahead" of broad market indexes, both in the U.K. and U.S. "Ultimately, we have made a decision that we believe to be in the best interests of shareholders, reflecting the corporate performance delivered, while continuing to engage and incentivize the company's senior management over the longer term," he said.

A spokesman for the company said the board consulted with shareholders representing around 20% of the company's equity before making the decision. None of those investors supported changing the peer group, and around half said the committee should be able to use its discretion on pay.

The spokesman acknowledged that a "significant number" of shareholders were opposed to the principle of exercising discretion on pay. Institutional Shareholder Services, an influential investor adviser, recommended to clients that they vote against the pay decision "given the obvious concern with awards paying out when targets have not been met."

The company said the committee was now undertaking a "thorough review" of remuneration arrangements for 2016, ahead of putting a new policy to a shareholder vote in 2017.

Write to Denise Roland at Denise.Roland@wsj.com

 

(END) Dow Jones Newswires

April 14, 2016 15:15 ET (19:15 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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