One of the City’s most prestigious fund managers could reject a slew of FTSE pay packages this year amid worries top bosses are cashing in on free shares too early.
Fidelity plans to use the new binding vote on pay policies — handed to shareholders by Business Secretary Vince Cable — to vote down any giving free shares to bosses which they can cash in after three years through long-term incentive plans. It believes that at least five years should pass before shares are cashed in, although it is happy for bosses to assume ownership of the shares after only three.
Typical long-term plans contain some form of performance link but can be worth many times an executive’s base salary, potentially handing them millions of pounds worth of free shares, usually after only three years.
EasyJet, Imperial Tobacco and catering group Compass — all of which have annual general meetings in the next few weeks — will be the first to test Fidelity’s new approach. The fund manager wrote to 400 companies 18 months ago to warn that it would be voting against plans which can be cashed in after three years. It issued another warning in September.
If Fidelity’s stance is followed by other big fund managers, companies will approach the AGM season with trepidation.
Last year, less than a handful of remuneration reports were rejected in voluntary votes, in stark contrast to the “Shareholder Spring” of 2012 when several were defeated or sparked rebellion.
Dominic Rossi, global chief investment officer for Fidelity International in the UK, said: “We will be using our binding vote to press companies for reform of long-term incentive schemes. We expect to vote against a number of schemes this year.
“There shouldn’t be a problem with success being rewarded and rewarded well. But that success has to be over an extended period. The five year holding period better aligns the interests of executives with shareholders.”
