Executives at several European banks and insurers will be
watching anxiously for signs of investor discontent at upcoming
annual meetings, as a wave of "no" votes on pay gathers momentum in
the financial services sector.
U.K.-listed bank Standard Chartered PLC (STAN.LN), German
insurer Allianz SE (ALV.XE) and Italy's UniCredit SpA (UCG.MI) are
set to face votes on matters including executive remuneration and
the re-election of executives following a year of turmoil in the
sector, with many companies struggling to meet tough new regulatory
requirements while still repairing balance sheets transformed
during the financial crisis.
Whether or not these three companies are exposed to protest
votes, the issues have become more important than ever in the
sector, with shareholders taking the initiative and seeking to make
executives pay for underperformance.
The upcoming AGMs follow a string of volatile meetings, with
Aviva PLC (AV.LN) Thursday becoming the latest financial company to
suffer the wrath of shareholders when investors rejected its pay
report, only the fourth time that has happened to a FTSE 100
company.
Also Thursday, more than 36% of UBS AG (UBS) shareholders voted
"no" in the nonbinding poll over pay at the Swiss bank's annual
meeting. It was the fourth consecutive year in which a large number
of shareholders opposed the remuneration report at the lender,
which required government assistance during the 2008 financial
crisis.
Some 32% of Credit Suisse Group AG (CS) shareholders opposed
that lender's compensation report last week, while nearly 27% of
voting shareholders at Barclays PLC (BCS) last week refused to back
the bank's 2011 pay report.
Experts say that there is a clear trend and that this is likely
to continue. Shareholders are no longer accepting directors'
recommendations on voting and are studying exactly what is being
proposed--especially when it comes to executive pay, they say.
"People in the past, both institutional and private investors,
automatically ticked the 'yes' box, but they are looking more
carefully now," said Roger Lawson of the UK Shareholders
Association.
"The trend is set to continue and even increase, in particular
with remuneration because there is a general social awareness that
company executives' pay is growing while everyone else's is
shrinking," he added.
The fact that the votes are nonbinding makes it even easier for
shareholders to register a "no" vote as a form of protest without
any real possibility of the vote backfiring.
However, this may change in the U.K. if a government proposal to
give investors binding votes on corporate pay policies, proposed by
business secretary Vince Cable, is implemented. The proposal refers
to remuneration payable in the future--the recent nonbinding votes
have been on last year's pay--and shareholders may be less likely
to follow the trend if there is a real chance that directors will
have to take cuts.
"At the moment, the board can ignore no votes--if this becomes
binding, people are less likely to act like a herd," Lawson
said.
A Standard Chartered spokesman declined to comment on whether
the bank was expecting a hard time from shareholders at Wednesday's
AGM.
"We gear our compensation criteria stringently towards
demonstrating long-term performance, and have clearly evidenced
this through nine years of record income and profit, both through
and after the financial crisis," he said.
Last year's votes for the remuneration report were 7.85%
against.
Meanwhile, Allianz shareholders are unlikely to voice a major
protest, said Daniela Bergdolt, who represents German DSW retail
shareholder association.
"Management remuneration won't be a topic at the Allianz AGM.
That's an issue for the Daimler and Volkswagen AGMs, but Allianz
management board members earn less than, for instance, Linde
management board members."
Instead, shareholders will be wanting more information about the
company's investment strategy, such as how Allianz plans to
generate the high returns of 5%-6% in the current capital market
environment that they have guaranteed to holders of life insurance
policies many years ago, she added.
UniCredit couldn't immediately be reached for comment on whether
it anticipates any shareholder discontent or if there be any
statement on management pay next week when it announces
first-quarter results and holds its AGM.
However, CEO Federico Ghizzoni said in March that UniCredit's
top management wouldn't receive bonuses for 2011 and that the top
120 managers of the banking group would see their variable pay
reduced 60%.
Most observers are also expecting a relatively calm AGM at ING
Groep NV (ING), scheduled May 14. The Dutch bank has already
responded to previous outbursts of shareholder anger over pay, in
particular when top executives received cash and stock bonuses for
2010 despite the fact that the bank was still relying on government
support that it received at the height of the financial crisis.
In response, the Dutch Parliament adopted legislation that
forbids bailed-out banks from paying top management bonuses, and
salaries have remained basically flat at ING and executives didn't
receive bonuses for 2011
Tom Muller, an Amsterdam analyst at Theodoor Gilissen, a private
bank, said he therefore didn't expect many firework at ING's AGM.
"ING can't pay too much, so it won't," he said. Muller said banks
will likely be forced to further scale down executive pay in the
coming years to reflect the current macroeconomic reality. "Let's
hope ING will be the first one to do that," he said.
Experts agree that shareholders don't mind directors getting
paid well if the company is performing, and many of the recent
protests against pay came as company stock had plummeted in value.
Aviva's shares fell 30% over the year, Credit Suisse registered a
42% loss in value, while hedge fund giant Man Group PLC (EMG.LN)
had fallen 58% and also received heavy opposition to its
remuneration report.
Others point out that there is a difference between short-term
and long-term performance, and it may be a stretch to expect
shareholders, even institutional ones, to delve too much into the
detail before voting.
"Institutional shareholders have already admitted that there is
a limitation to the number of companies with which they can
actively engage," said Chizu Nakajima, director of the Center for
Financial Regulation and Crime, with special responsibility for
corporate law and governance at Cass Business School.
"Do you judge performance on just one year's rapid growth or
over a several-year period?" she said.
-By Marietta Cauchi, Dow Jones Newswires; +44 207 842 9241;
marietta.cauchi@dowjones.com
(Ulrike Dauer in Frankfurt, Maarten van Tartwijk in Amsterdam
and Giovanni Legorano and Jessica Hodgson in London contributed to
this article.)