The fund-management group Amvescap is facing a growing shareholder rebellion next week over proposed multimillion-pound pay awards to its new chief executive Martin Flanagan and its departing chairman Charles Brady.
The influential shareholder group, Rrev, advised the group's shareholders yesterday to vote against the two packages, which are worth almost £12m between them. Mr Flanagan has received a £6.6m compensation payment and Mr Brady a £5m departing cash bonus. Shareholders are also being urged to vote against Mr Flanagan's four-year contract.
In doing so Rrev, the corporate governance body that advises the National Association of Pension Funds, has joined forces with Pirc, the Pension Investment Research Consultants, and Manifest, the UK proxy voting agency, before the company's annual meeting on Thursday in Henley-on-Thames.
The £5m cash bonus for Mr Brady, which the Anglo-American fund group has already given its departing founder and chairman, was described by Rrev as "inadequately justified". In its annual report, Amvescap said the bonus was paid for leading the group through a "difficult period", fending off a hostile bid approach and finding a successor.
Mr Flanagan gets his £6.6m in cash and 5 million shares in compensation for incentives lost when he left Franklin Templeton, as well as a four-year initial contract which reduces to a one-year rolling contract thereafter. The shareholder groups are concerned that if he leaves before 2010 he will receive up to four years' salary, currently set at an annual $790,000.
David Patterson, the head of Rrev and former head of corporate governance at JP Morgan, said: "It's not normal practice. I don't understand why the four-year contract was seen to be a necessary part of his package. There is a risk that for all sorts of reasons it won't work out and shareholders will pick up the bill."
He said an initial two-year contract would be acceptable, going down to one-year rolling. Rrev suggested giving performance-linked share incentives to encourage Mr Flanagan to stay on at the company.
Mr Patterson said if 20 to 30 per cent of investors voted against the remuneration report, "history suggests that if there is a vote of that size against, the company will look to understand better what we object to" even if it does not respond to all of the shareholder group's demands.
Amvescap, whose headquarters are in Atlanta while its main stock market listing is in London, has suffered big fund outflows for years. Two years ago, it paid $450m to settle allegations that it allowed large corporate clients to make trades that disadvantaged small investors. Fifty-two per cent of the group's shareholders are based in the UK, 33 per cent in the US and another 6 per cent in continental Europe.
A spokesman for Amvescap said the remuneration committee's decisions were fully explained in the company's annual report.
But Rrev dismissed the group's argument that the hostile bid from Canada's CI Fund Management created instability in the company and made Mr Brady's task of recruiting a new chief executive much harder.
The shareholder group said: "Rrev considers that dealing with these challenges and others like them is expected of a chief executive in a large company in the regular course of their duties. We would expect that a bonus should only be paid upon the delivery of results to shareholders, rather than for actions taken during a recovery phase with an uncertain conclusion."
Rrev said it was unconvinced by Amvescap's justification for its payout to Mr Flanagan, namely the 30 per cent increase in the share price since he joined the board and the steps he has taken so far, including the launch of seven new AIM funds, cost savings of $120m and the acquisition of PowerShares.Reuse content