‘Shareholder Spring’ reawakened as Fidelity vows pay crackdown

easyJet, Imperial Tobacco and catering group Compass will be the first to test Fidelity's new approach

One of the City’s most prestigious fund managers could reject a slew of FTSE pay packages this year amid worries over top bosses cashing in on free shares too soon – reawakening memories of the ‘Shareholder Spring’ two years ago.

Fidelity plans to use the new binding vote on pay policies – handed to shareholders by Business Secretary Vince Cable – to vote down any that hand free shares to bosses that they can cash in after three years through long term incentive plans (LTIPs).

The investor believes that they should wait at least five years before cashing in, although it is happy for such plans to “vest” and hand bosses ownership of the shares after three.

Typical LTIPs 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 just three years.

Easyjet, Imperial Tobacco and catering group Compass, all of which hold 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 them that it would be voting against LTIPs with a shareholding requirement of just 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 saw less than a handful of remuneration reports rejected in voluntary votes, in stark contrast to the so-called “Shareholder Spring” of 2012 when several endured either defeats or substantial rebellions. 

But Dominic Rossi, global chief investment officer for Fidelity International in the UK, told The Independent: “We are taking it very seriously and will be using our binding vote to press companies for reform of long term incentive schemes.

“The bottom line is most of the top 350 companies have LTIPs of three years for both the holding and the vesting period. What we have proposed is that boards split the holding and the vesting period, with the holding period lasting for five years as a minimum.

“This is about getting people to think longer term. They (executives) may own the shares through an LTIP after three years but they won’t be able to sell them for at least five.”

Mr Rossi added: “We expect to vote against a number of schemes this year. I do feel that there has been a mood change around execu-tive remuneration.

“There shouldn’t be a problem with success being rewarded and rewarded very well. But that success has to be over an extended period and we don’t feel two to three years is enough. The five year holding period better aligns the interests of executives with shareholders.”

Mr Rossi said he had noticed that the compulsory vote on pay policy had resulted in “more proactive engagement”.

He added: “Boards don’t want to find themselves in the position where they lose a binding vote.”

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