Our recent series of interviews with investors has revealed a diverse range of perspectives, highlighting the importance of nuanced shareholder engagement. It’s worth noting that investors do not speak with a single voice, and understanding their varied viewpoints is critical for effective decision making.
One of the main themes from this year's outreach is the increased level of earlier engagement from companies regarding pay issues, which has been well-received by investors.
Investors noted that there remain varying levels of disclosure across Europe but acknowledged that there has been a generally positive trend. Investors emphasized that high-quality disclosure is critical for investor support - in particular, they highlighted the need for companies to disclose the full details of incentive targets (on a forward-looking basis where possible), the rationale for any use of discretion and a preference for Remuneration Committees to clearly explain their thought process as well as the factual outcomes of remuneration decisions. Investors noted that they value clarity and simplicity in disclosure rather than overwhelming amounts of detail.
A notable theme of the 2024 AGM season (especially in the U.K.) was the ongoing debate about pay competitiveness for companies with talent markets including global/U.S. peers. Investors expect this topic to remain significant in 2025, increasingly for companies in Continental Europe.
Investors interviewed did show sympathy for companies on this topic. They were open to hearing proposals (on levels or reward structures) where a strong case, backed by evidence, can be put forward that it’s necessary and appropriate in the company’s specific circumstances. In such cases, investors stated that it was vital for companies to explain the business impact being addressed and what comparator group is being used to inform decision making.
However, a few investors expressed some nervousness about “opening the floodgates” for companies, now that several companies have received positive votes in this context, and emphasised that each company will need to put forward a strong case specific to their own circumstances to gain shareholder support. Some investors noted that there will continue to be a degree of difference in remuneration arrangements depending on the local market as there isn’t a single global talent market.
The incorporation of environmental, social, and governance (ESG) metrics in executive incentive arrangements is perhaps one of the areas where there is the widest range of views expressed by investors – ranging from it being critical for ESG metrics to be included to more neutral open-mindedness for companies to make the case for why they are appropriate. However, none of the investors spoke to were specifically against the inclusion of ESG metrics.
There is a consensus that ESG metrics must be clearly aligned with company strategy, disclosed in detail and use challenging targets. Increasing disclosure of ESG metrics is expected to lead to greater scrutiny in this area. Most investors are open-minded about whether ESG metrics are part of short- or long-term incentives, provided the company clearly explained its thought process and alignment to strategy.
As we approach the 2025 AGM season, most investors do not anticipate significant changes to their voting guidelines or approach. However, it’s evident that there is a growing openness among investors toward remuneration policies that deviate slightly from the traditional and largely uniform models of European companies, though the fundamentals of transparent disclosure and a compelling rationale for any proposals remain vital for gaining shareholder support. As always, engaging thoughtfully with your specific shareholder base continues to be a critical part of the decision-making process for remuneration committees.
We’ll be monitoring outcomes as we move into the forthcoming AGM season to understand the direction of travel on topical voting issues and will provide updates in due course.
WTW has recent experience of supporting some of the largest global listed organisations in putting bold remuneration policy proposals in front of investors, based on the priority needs of the business and cognizant of, but not led by, corporate governance expectations. If you would like to discuss executive compensation or any other reward matter, please reach out to your WTW representative, or contact the authors.
