Stewardship | ~ 4 min read

Voting to shape sustainable boardrooms

As active investors our stewardship of clients’ assets is an important responsibility. With proxy voting core to this, we follow up on our blog post on environmental and social trends in this year’s AGM season by looking at the corporate governance issues that once again raised concerns.

Executive pay and board independence are two key governance issues that remained high on agendas:

Understanding low vote-turnout on Say on Pay

An area of scrutiny by investors, we prioritise executive remuneration in our proxy voting. Overall, we noted progress in remuneration practices and transparency in “Say on Pay”1 (SoP) in countries where it was only introduced a few years ago. However, we also observed a persistently high share of votes against remuneration reports at some companies which is a concern, for example, in Germany. Given that the 2025 voting season will see a high number of SoP proposals in certain European markets (due to remuneration policies requiring a vote at least every four years in line with the Shareholder Rights Directive II) we encourage companies recording over 20-25% “against” votes to prepare and engage closely with investors.

In recent years, our votes against remuneration proposals were mostly due to major discretion built into policies, or observed in pay practices, ie, payouts not aligned with achievement of targets. Other recurring concerns relate to low levels of transparency on key performance indicators (KPIs), targets, achievements, and payouts or high pension provisions. The broader adoption of climate and social KPIs in remuneration policies is welcome – and now standard in large companies – however, we expect transparency on these KPIs to equal that of financial KPIs, with a focus on financial materiality and SMART targets.2


Taking action on board independence

Issues around the independence of directors have come to the fore again. While we support the positive trend of separating chairman and CEO roles (eg, in France) we have frequently voted against elevated pay packages for former CEOs who have become non-independent chairs.

While, non-independent chairs can fill interim positions and often bring industry experience, investors are increasingly critical of their appointments, as observed in Germany this past season. We expect companies to install a Lead Independent Director (LID) on the board – a key consideration for our vote. The LID should be experienced, interact with shareholders and contribute to the effective functioning of the board.3 Companies should provide the LID with an active role, and not just for formal compliance.

While voting patterns on these topics may fluctuate, our consistent approach reflects high expectations of the companies that we invest in and our commitment to be vocal on issues that matter.

Read our blog post on the environmental and social proxy voting trends that stood out this year.

1 Say on Pay is a corporate law applicable to public companies, allowing shareholders to periodically vote on executive remuneration.
2 SMART is an acronym for specific, measurable, achievable (but ambitious), relevant and time bound
3 On the role of the LID in the context of the German two-tier board system please refer to Why German companies should embrace the role of lead independent director (allianzgi.com)

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