Analysis of Executive Director remuneration policies and shareholder feedback
In 2024, around half of the companies analysed made material changes to their remuneration policies – across Europe, the overall number of companies that put their remuneration policies to vote this year is similar to last year, although this does vary by country.
Key developments to date are:
Changes in KPIs and the use of ESG
Change in incentive levels
New LTI plans
The changes in LTI plan design differ according to local country practice and stakeholder priorities. For example, companies in Belgium are introducing performance share plans alongside pre-existing stock option and restricted share plans. Companies in Germany are reducing complexity in the LTI design and those with backward-looking performance measurement still in place are replacing them with forward-looking performance periods. There is mixed practice in the UK, with some companies reverting to market-standard performance share plans and others adopting atypical structures to ensure they remain globally competitive.
As KPIs in short-term incentive (STI) plans frequently evolve from year to year, we focus on material changes to LTI performance metrics that are often only revised alongside policy reviews. Overall, we observe that, where companies are amending non-financial metrics in LTI, they are primarily changing the way in which ESG targets are selected, set and measured, e.g., increased weighting, changes in ESG categories, and modified or adjusted target measurement.
A more detailed analysis of design changes, that also compares ex-post disclosures in remuneration reports, will be provided later in the year.
As of 30 May, the average approval rate for remuneration policies among European companies stands at 88%. The range of voting results, from 40.41% at the lowest point to 99.79% at the top end, is very broad. In total, 89% of approval rates are above 70%, 9% fall between 50% and 69%, and 2% are below 50%. Voting results on remuneration policies in Finland are notably lower than elsewhere, accompanied by a very high number of “against” recommendations from ISS. These recommendations are primarily driven by insufficient disclosure in the description of the remuneration policies in combination with one-off awards.
27% of proposed policies received a negative voting recommendation.
Based on an evaluation of the Institutional Shareholder Services (ISS) reports of 181 remuneration policies put to vote across the region, 27% of proposed policies received a negative voting recommendation. In a large proportion of positive voting recommendations, significant concerns were raised, leading to a further 41% of policies receiving “contentious for” recommendations. In line with subsequent voting results, a relatively large proportion of “against” recommendations are observed in Finland, but also in Belgium, Denmark, France and Italy. It is difficult to compare this with prior years, as the proportion of companies putting remuneration policies to vote each year fluctuates more in some countries than others. That said, this year’s AGM results in Belgium, Netherlands and Italy are somewhat more positive, while the results in Germany, the UK, Spain and Denmark are somewhat less positive, than in 2023.
| Index | Number of voting results | Average result | % of results greater than 70% | % of results 50% to 69% | % of results below 50% |
|---|---|---|---|---|---|
| AEX 25 | 7 | 96.60% | 100% | ||
| BEL 20 | 7 | 89.26% | 86% | 14% | |
| CAC 40 | 30 | 88.92% | 97% | 3% | |
| DAX 40 | 12 | 85.80% | 84% | 8% | 8% |
| FTSE 100 | 15 | 89.28% | 87% | 13% | |
| MIB 40 | 28 | 88.84% | 96% | 4% | |
| IBEX 35 | 11 | 89.08% | 100% | ||
| ISEQ 20 | 7 | 94.31% | 100% | ||
| OMXC | 17 | 88.67% | 82% | 18% | |
| OMXH | 12 | 75.01% | 67% | 25% | 8% |
| OMXS | 2 | 77.56% | 50% | 50% |
| Index | ISS FOR | ISS CONT. FOR | ISS AGAINST | Glass Lewis FOR | Glass Lewis AGAINST |
|---|---|---|---|---|---|
| AEX 25 | 90% | 10% | 100% | ||
| BEL 20 | 55% | 9% | 36% | 64% | 36% |
| CAC 40 | 22% | 56% | 22% | 79% | 21% |
| DAX 40 | 46% | 39% | 15% | 88% | 12% |
| FTSE 100 | 33% | 50% | 17% | 80% | 20% |
| MIB 40 | 23% | 51% | 26% | 69% | 31% |
| IBEX 35 | 36% | 55% | 9% | 80% | 20% |
| ISEQ 20 | 43% | 43% | 14% | 86% | 14% |
| OMXC | 41% | 35% | 24% | 76% | 24% |
| OMXH | 5% | 20% | 75% | 58% | 37% |
| OMXS | 57% | 36% | 7% | 83% | 17% |
Across Europe, the most prevalent categories of ISS concerns on remuneration policies are:
The points of criticism vary significantly between countries, partly due to how long ago say-on-pay votes were introduced, but also simply due to different market practices. Regarding disclosure limitations, there is, for example, still room for improvement on the ex-ante disclosures of key LTI design features like vehicle mix, vesting schedules and metrics used in Belgium, whereas in Finland, concerns are raised over a more general lack of disclosure of key STI and LTI design parameters, as well as details of one-off and termination awards. In other countries, where disclosure practice is already very robust, concerns have nevertheless been raised regarding insufficient rationale for increases in remuneration packages / caps or details missing on payout scales. In the cases of France and Germany, the key concern this year has not been raised before: information required to quantify fixed remuneration levels is missing.
With respect to LTI KPI / target concerns, those in Germany primarily focus on partial vesting at below peer median performance for relative TSR measures while, in Belgium and Finland, the focus is on stock options / restricted share plans with no performance targets and vesting periods below three years. In Denmark, key concerns are the discretionary performance measurement of non-financial metrics and the grant of restricted shares, as well as excessive or missing LTI caps.
As of 30 May, the average approval rate on remuneration reports among European companies stands at 91%. Once again, there is a very broad range: 34.10% at the lowest point and 100% at the top end. In total, 94% of the approval rates are above 70%, 5% fall between 50% and 69%, and 1% are below 50%. Based on an evaluation of 336 ISS reports, 20% of the remuneration reports received a negative voting recommendation. Further, significant concerns were raised in a large proportion of positive voting recommendations, leading to a further 38% of “contentious for” recommendations. A relatively large proportion of “against” recommendations are observed in the same countries that also received a high proportion of concerns for proposed policies – Finland, Belgium, Italy, Denmark – as well as in Switzerland. Excluding Switzerland, these same countries also received a high level of “against” recommendations in 2023, relative to others. Compared to 2023, approval rates are more positive in seven of the twelve countries, but somewhat less positive in Italy, Switzerland, and Denmark.
| Index | Average result | % of results greater than 70% | % of results 50% to 69% | % of results below 50% |
|---|---|---|---|---|
| AEX 25 | 89.58% | 93% | 7% | |
| BEL 20 | 89.26% | 86% | 14% | |
| CAC 40 | 92.01% | 100% | ||
| DAX 40 | 89.83% | 95% | 5% | |
| FTSE 100 | 95.05% | 96% | 4% | |
| MIB 40 | 88.02% | 94% | 3% | 3% |
| IBEX 35 | 91.96% | 100% | ||
| ISEQ 20 | 97.14% | 100% | ||
| SMI | 84.80% | 88% | 6% | 6% |
| OMXC | 89.17% | 91% | 9% | |
| OMXH | 91.75% | 94% | 6% | |
| OMXS | 94.86% | 100% |
| Index | ISS FOR | ISS CONT. FOR | ISS AGAINST | Glass Lewis FOR | Glass Lewis AGAINST |
|---|---|---|---|---|---|
| AEX 25 | 70% | 13% | 17% | 94% | 6% |
| BEL 20 | 60% | 5% | 35% | 75% | 25% |
| CAC 40 | 42% | 40% | 18% | 86% | 14% |
| DAX 40 | 41% | 49% | 11% | 82% | 18% |
| FTSE 100 | 46% | 52% | 2% | 98% | 2% |
| MIB 40 | 36% | 33% | 31% | 61% | 39% |
| IBEX 35 | 54% | 31% | 15% | 78% | 22% |
| ISEQ 20 | 54% | 33% | 13% | 86% | 14% |
| SMI | 59% | 12% | 29% | 76% | 24% |
| OMXC | 30% | 40% | 30% | 74% | 26% |
| OMXH | 16% | 40% | 44% | 79% | 21% |
| OMXS | 39% | 46% | 14% | 58% | 42% |
For companies with robust disclosure in their remuneration reports, the reason for significant changes in approval rates on ex-post resolutions is usually related to company-specific circumstances. Nevertheless, it is repeatedly observed that a well-structured report, with an investor-friendly presentation of the core content and as detailed disclosure as possible on the key points around the topic of pay-for-performance, can lead to better voting results. Unsurprisingly therefore, shortcomings in disclosure are most frequently criticized by proxy advisors.
Across Europe, the most prevalent categories of concern raised by ISS on remuneration reports are:
In some countries, particularly the Scandinavian region as well as Italy, Switzerland and Belgium, proxy advisors criticise the opaqueness of remuneration reporting that makes it difficult, or even impossible, to assess the link between pay and performance. In others, feedback relates more to a possible improvement in the disclosure of non-financial metrics, target achievement levels or rationale for one-off payments.
Although we have not yet reached the close of the AGM season, we can already draw some clear conclusions:
We look forward to seeing how the AGM season concludes and will provide another update at that point in time. If you would like advice or support on approaching your AGM, remuneration policy or disclosure practices, please contact us.
