WEDNESDAY 10 MAR 2010 9:54 AM


With the AGM season almost upon us, executive compensation and corporate governance will set the agenda, with shareholders set to be far more engaged in the process, according to recent research amongst the institutional investment community.

The research was undertaken by HQB Partners, the shareholder communications and corporate governance advisory firm, and involved speaking to the governance and proxy voting teams responsible for assets in excess of €8 trillion at 23 of the biggest institutional investors.

Considering the amount of news coverage given to executive compensation, it was hardly surprising that remuneration was the key area of worry for investors, with 19 out of 23 investors highlighting it as an area of concern. Investors were not worried about the scale of compensation packages but whether they had transparent performance criteria in place, particularly in relation to variable pay and other incentive plans. Investors are anxious not to return to a "pay-for-failure" scenario.

Importantly, for all resolutions related to remuneration, all the investors that took part required companies to disclose their performance criteria before the AGM, and if not were likely to reward the firm with a negative vote.

The research also showed that it is not enough for the comms team to solely highlight board independence when evaluating management. The investment community now expect more detailed answers on areas such as the overall effectiveness of the board, the experience individual board members bring to companies and their individual or collective ability to contribute to strategic decisions.

Most of those who took part in the research supported the separation of the positions of CEO and Chairman, with the majority indicating their willingness to vote against individuals holding or intending to hold both positions.

Interestingly, the research noted that although most issuers receive vote recommendations and other AGM research from various proxy advisory agencies, just over half indicated that these recommendations were primarily or exclusively for background use only. This highlighted the growing importance for issuers to be aware of the internal voting policies of investors when drafting their resolutions and of the need to develop targeted as well as effective shareholder communication campaigns.